Do actively managed mutual funds exploit stock market mispricing?
- Authors
- Lee Jaeram; Jeon H.; Kang J.; Lee C.
- Issue Date
- Jul-2020
- Publisher
- Elsevier Inc.
- Keywords
- Anomalies; Managerial skill; Mispricing; Mutual funds
- Citation
- North American Journal of Economics and Finance, v.53
- Journal Title
- North American Journal of Economics and Finance
- Volume
- 53
- URI
- https://scholarworks.bwise.kr/gachon/handle/2020.sw.gachon/61763
- DOI
- 10.1016/j.najef.2020.101189
- ISSN
- 1062-9408
- Abstract
- Constructing a proxy for mispricing with 15 well-known stock market anomalies, we examine whether actively managed mutual funds exploit mispricing. We find that, in the aggregate, mutual funds overweight overvalued stocks and underweight undervalued stocks relative to a passive benchmark, and this tendency is explained by the ill-motivated trades of agency-prone fund managers. In addition, we find that mutual funds with the highest weights in undervalued stocks outperform those with the highest weights in overvalued stocks by an annualized three-factor alpha of 2.12% (t = 2.38), implying that slanting portfolios based on our proxy helps mutual funds improve performance. © 2020 Elsevier Inc.
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