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This paper studies the effect of new fund flows on investment behavior and the resulting equilibrium price of risk. The Small Fund Industry model shows equilibria with overinvestment in unprofitable and underinvestment in profitable investment opportunities. The Large Fund Industry model derives...
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test criteria in identifying true asset pricing factors. We focus on the Sharpe ratio and pricing performance improvement …. While both criteria are exposed to model misspecification, we find that pricing performance criteria are inferior as their … performance is driven by estimation bias. Through an empirical application, we demonstrate the impact of the criteria on the …
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