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

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  • Gupta-Mukherjee, Swasti

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.

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  • Gupta-Mukherjee, Swasti, 2014. "Investing in the “New Economy”: Mutual Fund Performance and the Nature of the Firm," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 49(1), pages 165-191, February.
    • Handle: RePEc:cup:jfinqa:v:49:y:2014:i:01:p:165-191_00
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    Cited by:

    1. Victor DeMiguel & Javier Gil-Bazo & Francisco J. Nogales & André A. P. Santos, 2021. "Can Machine Learning Help to Select Portfolios of Mutual Funds?," Working Papers 1245, Barcelona School of Economics.
    2. DeMiguel, Victor & Gil-Bazo, Javier & Nogales, Francisco J. & Santos, André A.P., 2023. "Machine learning and fund characteristics help to select mutual funds with positive alpha," Journal of Financial Economics, Elsevier, vol. 150(3).

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