Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/106816
Authors: 
Baquero, Guillermo
Verbeek, Marno
Year of Publication: 
2015
Series/Report no.: 
ESMT Working Paper 15-01
Abstract: 
We examine the relative weights hedge fund investors attach to past information in the fund selection process. The weighting scheme appears inconsistent with econometric forecasting models that predict fund returns, alphas or Sharpe ratios. In particular, investor flows are highly sensitive to performance streaks despite their limited predictive power regarding fund performance. Further, allocations based on forecast models' out-of-sample predictions beat investor allocations by a significant margin, which suggests that the latter are suboptimal and reflect overreaction to certain types of information. Our findings do not support the notion that sophisticated investors have superior information or superior information processing abilities.
Subjects: 
hedge funds
money flows
extrapolative expectations
law of small numbers
performance streaks
relative weights
smart money
JEL: 
G11
G12
G14
G23
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
959.37 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.