Researchers have explored whether fund flows can predict future fund performance with mixed results. While prior work analyzes US or UK data without a specified theoretical underpinning, we examine the predictions of a rational agent model built on Berk and Green (2003). When investors infer the
managerial abilities of funds from past fund returns, assuming partial adjustment, the model implies that the smart money effect arises for young funds. Employing a Korean monthly dataset where young funds constitute a substantial portion, we establish a smart money effect for young funds but not for
the whole fund universe. Further evidence suggests that investment flows responding to past fund returns indeed drive the smart money effect.
Keywords: Smart Money, Learning, Fund Selection Ability, Fund Age, Partial Adjustment
JEL Classification: G11, G14, G23
학회소식
공지사항
[2011년 제 4차] Partial Adjustment, Learning, and the Smart Money E
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2011-12-07
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