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Do financial experts make better investment decisions?

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  • Bodnaruk, Andriy
  • Simonov, Andrei

Abstract

We provide direct evidence on the effect of financial expertise on investment outcomes by analyzing private portfolios of mutual fund managers. We find no evidence that financial experts make better investment decisions than peers: they do not outperform, do not diversify their risks better, and do not exhibit lower behavioral biases. Managers do much better in stocks for which they have an information advantage over other investors, i.e., stocks that are also held by their mutual funds. More experienced managers seem to be aware of the limitations to their investment skills as they increase their holdings of mutual fund-related stocks following poor performance of their portfolios. Our results suggest that there are limits to the value added by financial expertise.

Suggested Citation

  • Bodnaruk, Andriy & Simonov, Andrei, 2015. "Do financial experts make better investment decisions?," Journal of Financial Intermediation, Elsevier, vol. 24(4), pages 514-536.
  • Handle: RePEc:eee:jfinin:v:24:y:2015:i:4:p:514-536
    DOI: 10.1016/j.jfi.2014.09.001
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    Cited by:

    1. Glenn Boyle & Gerald Ward, 2016. "Do Better Informed Investors Always Do Better?," Working Papers in Economics 16/29, University of Canterbury, Department of Economics and Finance.
    2. Markus Ibert & Ron Kaniel & Stijn Van Nieuwerburgh & Roine Vestman, 2017. "Are Mutual Fund Managers Paid For Investment Skill?," NBER Working Papers 23373, National Bureau of Economic Research, Inc.
    3. Glenn Boyle & Gerald Ward, 2018. "Do Better Informed Investors Always Do Better? A Buyback Puzzle," Working Papers in Economics 18/06, University of Canterbury, Department of Economics and Finance.
    4. Agarwal, Sumit & Chomsisengphet, Souphala & Zhang, Yunqi, 2017. "How does working in a finance profession affect mortgage delinquency?," Journal of Banking & Finance, Elsevier, vol. 78(C), pages 1-13.
    5. repec:eee:intfor:v:33:y:2017:i:3:p:605-617 is not listed on IDEAS

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