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Investing in the “New Economy”: Mutual Fund Performance and the Nature of the Firm

Published online by Cambridge University Press:  04 April 2014

Swasti Gupta-Mukherjee
Swasti Gupta-Mukherjee*
Affiliation:
[email protected], Quinlan School of Business, Loyola University Chicago, 1 E Pearson St, Chicago, IL 60611.
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Abstract

Although stock returns of intangibles-intensive firms tend to exceed physical assets-intensive firms, risk-adjusted returns of actively managed mutual funds significantly decrease (increase) with their portfolios’ exposure to intangibles-intensive (physical assets-intensive) firms. Fund managers tend to exhibit skill when they focus on difficult-to-value (e.g., small) firms, except when the firms are intangibles-intensive. In sum, the worst-performing funds are in areas of the market that seem to offer ample opportunities for professional investors due to exacerbated mispricing. The negative impact of investments in intangibles-intensive firms on fund performance appears to be driven by extrapolation bias and decreases with learning from experience.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 49 , Issue 1 , February 2014 , pp. 165 - 191
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2014 

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