Recent research by Gruber (1996) and Zheng (1999) has shown that investors are able to predict mutual fund performance and invest accordingly. This phenomenon has been dubbed the smart money effect. We show that the smart money effect is explained by stock return momentum at the one year...

Does the quot;smart moneyquot; effect documented by Gruber (1996) and Zheng (1999) reflect fund selection ability of mutual fund investors? We examine the finding that investors are able to predict mutual fund performance and invest accordingly. We show that the smart money effect is explained...