We provide new evidence that international portfolios reflect the underlying heterogeneity in investors' beliefs. Using data on foreign sovereign debt holdings of European banks matched with their forecasts on future bond yields, we find that expecting higher returns and having more accurate...

We demonstrate that fund investors employ a heuristic benchmark model to estimate alphas and allocate capital. This can result in observational equivalence to CAPM driven investment decisions. The benchmark estimator trades off bias against precision, accommodating finite sample constraints. The...

We study the information content of the mutual-fund investor mix at the fund level. Building on the fund-flow determinant literature, we develop a method to attribute the proportion of fund net-in-flow explained by a fund's fundamental characteristics and past performance as smart and dumb money...

We link a seemingly biased trading behavior to equilibrium asset prices. U.S. equity mutual fund managers tend to sell both their big winners and big losers. This selling pressure pushes down current prices and leads to higher future returns; aggregating across funds, we nd that securities for...

Which factor model do investors in corporate bonds use? We examine this question by tracking investors' decisions to invest in actively managed corporate bond mutual funds with a revealed preference approach. Our main result is that all bond factor models are dominated by the simple Sharpe...

I study the determinants of mutual fund managers' expectations about the stock market and its implications for decision making and fund performance. Using a direct measure of managers' market expectations extracted from mutual funds' semi-annual reports, I find that fund managers extrapolate...

I study how mutual funds invest in public U.S. firms where founding family members retain a significant portion of shares. I posit that informed funds exploit the opaque nature of family firms by holding large positions when they have good private signals about the firms. By studying actively...

The on-going debate over whether fund managers have skills and whether those skills are short-lived is still inconclusive. Using the performance measure that can't be manipulated with respect to the underlying distribution, time variation, nor estimation error, (the manipulation-proof...

Lending to emerging market economies (EMEs) through bond purchases has surged since 2009. What are the risks of a sudden stop? Bond mutual funds may curtail credit through two channels. The first is redemptions by ultimate investors. The second is additional discretionary sales by fund managers,...

Using a comprehensive sample of 164 domestic equity Smart Beta (SB) ETFs during 2003-2014 period, I analyze whether these funds beat their benchmarks by tilting their portfolios to well-known factors such as size, value, momentum, quality, beta and volatility. I then test if Smart Beta funds...