Mutual Funds in Equilibrium
Jonathan B. Berk () and
Jules van Binsbergen ()
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Jonathan B. Berk: Graduate School of Business, Stanford University, Stanford, California 94305
Annual Review of Financial Economics, 2017, vol. 9, issue 1, 147-167
Historically, the literature on money management has inconsistently applied the rational expectations equilibrium concept. We explain why and summarize developments in the money management literature that do apply this concept correctly. We demonstrate that the rational expectations equilibrium approximates the observed equilibrium in the money management space at least as well as it does in the stock market. Recent work reveals that there is little support for the common conclusion that, as a group, investors in the money management space are naive and that mutual fund managers are charlatans. Even today, equilibrium thinking is not nearly as prevalent in mutual fund research as it is in the rest of asset pricing. This state of play provides a multitude of opportunities for future research in the area.
Keywords: alpha; rational expectations; returns to scale; skill; value added (search for similar items in EconPapers)
JEL-codes: G11 G20 G23 J24 J31 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:anr:refeco:v:9:y:2017:p:147-167
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