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

Swasti Gupta-Mukherjee

Journal of Financial and Quantitative Analysis, 2014, vol. 49, issue 1, 165-191

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.

Date: 2014
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