We decompose the conditional expected mutual fund return in five parts. Two parts, selectivity and expert market timing, can be attributed to manager skill, and three to variation in market exposure that can be achieved by private investors as well. The dynamic model that we use to estimate the...

We construct hypothetical copycat funds to investigate the performance of free-riding strategies that duplicate the disclosed asset holdings of actively managed mutual funds. On average, copycat funds are able to generate performance that is comparable to their target mutual funds, taking into...

We show that a real-time trading strategy which front-runs the anticipated forced sales by mutual funds experiencing extreme capital outflows generates an alpha of 0.5% per month during the 1990–2010 period. The abnormal return stems from selling pressure among stocks that are below the NYSE...

We examine the relative weights hedge fund investors attach to past information in the fund selection process. The weighting scheme appears inconsistent with econometric forecasting models that predict fund returns, alphas or Sharpe ratios. In particular, investor flows are highly sensitive to...

We examine the relative weights hedge fund investors attach to past information in the fund selection process. The weighting scheme appears inconsistent with econometric forecasting models that predict fund returns, alphas or Sharpe ratios. In particular, investor flows are highly sensitive to...

The consensus wisdom of active mutual fund managers, as reflected in their average over- and underweighting decisions, contains valuable information about future stock returns. Analyzing a comprehensive sample of active U.S. equity funds 1984-2008, we find that stocks heavily overweighted by...

We show that a real-time trading strategy which front-runs the anticipated forced sales by mutual funds experiencing extreme capital outflows generates an alpha of 0.5% per month during the 1990-2010 period. The abnormal return stems from selling pressure among stocks that are below the NYSE...

Believers in the law of small numbers tend to overinfer the outcome of a random process after a small series of observations. They believe that small samples replicate the probability distribution properties of the population. We provide empirical evidence indicating that investors are...

We explore the flow-performance interrelation of hedge funds by separating the investment and divestment decisions of investors using a regime switching model. We report three previously undocumented features in hedge fund data. First, we find a weak inflow-performance relation at quarterly...

Hedge funds databases are typically subject to high attrition rates because of fund termination and self-selection. Even when all funds are included up to their last available return, one cannot prevent that ex post conditioning biases affect standard estimates of performance persistence. In...