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Where are the smart investors? New evidence of the smart money effect

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  • Yu, Hsin-Yi

Abstract

Previous research debates whether investors are smart enough to invest in funds that subsequently outperform. This paper documents a robust smart money effect among top-performing small fund investors, even after controlling for the momentum factor. I further explore the reason for the smart money effect and find that such outperformance comes from the market-timing ability of smart investors. Market-timing ability distinguishes smart investors from investors who naively chase the winners.

Suggested Citation

  • Yu, Hsin-Yi, 2012. "Where are the smart investors? New evidence of the smart money effect," Journal of Empirical Finance, Elsevier, vol. 19(1), pages 51-64.
    • Handle: RePEc:eee:empfin:v:19:y:2012:i:1:p:51-64
    DOI: 10.1016/j.jempfin.2011.09.005
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    References listed on IDEAS

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    Cited by:

    1. Yamani, Ehab, 2023. "The informational role of fund flow in the profitable predictability of mutual funds," Finance Research Letters, Elsevier, vol. 51(C).
    2. Klinkowska, Olga & Zhao, Yuan, 2023. "Fund flows and performance: New evidence from retail and institutional SRI mutual funds," International Review of Financial Analysis, Elsevier, vol. 87(C).
    3. Fernando Muñoz & Maria Vargas & Isabel Marco, 2014. "Environmental Mutual Funds: Financial Performance and Managerial Abilities," Journal of Business Ethics, Springer, vol. 124(4), pages 551-569, November.
    4. Rakowski, David & Yamani, Ehab, 2021. "Endogeneity in the mutual fund flow–performance relationship: An instrumental variables solution," Journal of Empirical Finance, Elsevier, vol. 64(C), pages 247-271.

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    More about this item

    Keywords

    Smart money effect; Fund cash flow; Fund performance; Timing ability;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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