Do Funds with More CAPM Investors Perform Better? And, If So, Why?
69 Pages Posted: 30 Oct 2019 Last revised: 9 Jan 2023
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Do Funds with More CAPM Investors Perform Better? And, If So, Why?
Do Funds with More CAPM Investors Perform Better? And, If so, Why?
Date Written: January 3, 2023
Abstract
Measuring fund clientele by investors’ revealed usage of different asset pricing models, we show that funds with more CAPM investors perform better, all else equal. This predictability is not because the CAPM-alpha predicts future fund performance but because it reflects investor sophistication. This is consistent with Gârleanu and Pedersen’s (2018) key theoretical prediction that funds with more sophisticated investors should perform better due to the screening and matching effect. We provide further empirical evidence that the CAPM effect predictably varies with traditional fund investor sophistication measures and is stronger in pools of funds with better resources.
Keywords: mutual-fund flows, risk factors, non-risk factors, smart-money effect, CAPM
JEL Classification: G11, G12
Suggested Citation: Suggested Citation