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Is Money Smart? A Study of Mutual Fund Investors' Fund Selection Ability

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  • Lu Zheng

Abstract

A previous study finds evidence to support selection ability among active fund investors for equity funds listed in 1982. Using a large sample of equity funds, I find evidence that funds that receive more money subsequently perform significantly better than those that lose money. This effect is short‐lived and is largely but not completely explained by a strategy of betting on winners. In the aggregate, there is no significant evidence that funds that receive more money subsequently beat the market. However, it is possible to earn positive abnormal returns by using the cash flow information for small funds.

Suggested Citation

  • Lu Zheng, 1999. "Is Money Smart? A Study of Mutual Fund Investors' Fund Selection Ability," Journal of Finance, American Finance Association, vol. 54(3), pages 901-933, June.
    • Handle: RePEc:bla:jfinan:v:54:y:1999:i:3:p:901-933
    DOI: 10.1111/0022-1082.00131
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