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Do financial experts make better investment decisions?

Listed author(s):
  • Bodnaruk, Andriy
  • Simonov, Andrei

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.

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File URL: http://www.sciencedirect.com/science/article/pii/S1042957314000588
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Article provided by Elsevier in its journal Journal of Financial Intermediation.

Volume (Year): 24 (2015)
Issue (Month): 4 ()
Pages: 514-536

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Handle: RePEc:eee:jfinin:v:24:y:2015:i:4:p:514-536
DOI: 10.1016/j.jfi.2014.09.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622875

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