Smart money, dumb money, and capital market anomalies

Ferhat Akbas, Will J. Armstrong, Sorin Sorescu and Avanidhar Subrahmanyam

Journal of Financial Economics, 2015, vol. 118, issue 2, 355-382

Abstract: We investigate the dual notions that “dumb money” exacerbates well-known stock return anomalies and “smart money” attenuates these anomalies. We find that aggregate flows to mutual funds (dumb money) appear to exacerbate cross-sectional mispricing, particularly for growth, accrual, and momentum anomalies. In contrast, hedge fund flows (smart money) appear to attenuate aggregate mispricing. Our results suggest that aggregate flows to mutual funds can have real adverse allocation effects in the stock market and that aggregate flows to hedge funds contribute to the correction of cross-sectional mispricing.

Keywords: Stock return anomalies; Mutual funds; Hedge funds; Fund flows; Mispricing (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (71)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:118:y:2015:i:2:p:355-382

DOI: 10.1016/j.jfineco.2015.07.003

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