We demonstrate that a broad set of asset pricing factors (anomalies) are significantly exposed to "noise trader risk," and the noise trader risk is priced in factor premia. We first confirm that mutual funds' flow-induced trades of factors are uninformed as they generate a large price impact on...

Rational investors should account for risk factor exposure when allocating capital to mutual funds. Two recent influential studies use mutual fund flows to test whether investors distinguish between performance driven by managers' skill and systematic risk factors. Both studies found that...