, while mutual fund strategies are largely trend following. The only institutional performers---the 2/3 of hedge fund managers … that are contrarian---earn alpha of 2.4% per year. Contrarian hedge fund managers tend to trade profitably with all other … manager types, especially when purchasing stocks from momentum-oriented hedge and mutual fund managers. Superior contrarian …

Why do investors entrust active mutual fund managers with large sums of money while receiving negative excess returns … on average? Our explanation is that investors have a coarser information set than fund managers which leads them to … systematically misinterpret managers' skill. When investors are unable to correctly quantify risk because they have no knowledge of …