Using a large sample of institutional investors' investments in private equity funds raised between 1991 and 2011, we estimate the extent to which investors' skill affects their returns. Bootstrap analyses show that the variance of actual performance is higher than would be expected by chance,...

We examine the impact of return predictability and parameter uncertainty on investors' long-term portfolio allocations in the context of disappointment aversion. We find persisting horizon effects, with stocks appearing progressively more attractive at longer horizons as opposed to shorter ones....

Using survey-based measures of mutual fund manager loss aversion, we study the effects of institutional investor preferences on their investment decisions, performance, and career outcomes. We find that managers with higher aversion to losses choose portfolios with lower downside risk, increase...

Using data from surveys as well as as real transactions we analyze which and why investors choose funds with performance fees even though these funds may be more expensive. According to agency theory, performance fees could incentivize managers to achieve better returns, but they could also...

Recent research reveals that hedge fund returns exhibit a range of different,possibly non-linear pay-off patterns. It is difficult to qualify all these patternssimultaneously as being rational in a traditional framework for optimal financial decisionmaking. In this paper we present a simple...

Using detailed mutual fund holdings in the US market, we estimate active mutual fund managers’ loss aversion as a function of both funds’ past performance and asset allocations. We document a substantial variation in loss aversion over time. We further find managers' loss aversion is higher...

We study dynamic portfolio choice of a long-horizon investor who uses deep learning methods to predict equity returns when forming optimal portfolios. Our results show statistically and economically significant benefits from using deep learning to form optimal portfolios through certainty...

Strategies that overweight low beta stocks and underweight high beta stocks earn positive alphas. Price noise is known to affect high beta stocks, hence, noise trading can be expected to significantly affect the performance of these strategies. I study the impact of flows between bond and equity...