IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v49y2014i01p249-269_00.html
   My bibliography  Save this article

Hindsight Effects in Dollar-Weighted Returns

Author

Listed:
  • Hayley, Simon

Abstract

A growing number of studies use dollar-weighted (DW) returns as evidence that bad timing substantially reduces investor returns, and that consequently the equity risk premium must be considerably lower than previously thought. This paper demonstrates that this method is subject to a hindsight effect (as prior returns influence levels of new investment) and derives a technique that corrects it. The results show that for mainstream U.S. equities, DW returns are low because of this hindsight effect (bad investor timing had very little impact). Thus, low DW returns do not imply that the risk premium is correspondingly low.

Suggested Citation

  • Hayley, Simon, 2014. "Hindsight Effects in Dollar-Weighted Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 49(1), pages 249-269, February.
    • Handle: RePEc:cup:jfinqa:v:49:y:2014:i:01:p:249-269_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109014000155/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sun, Lingxia & Lee, Dong Wook, 2019. "Dollar-weighted return on aggregate corporate sector: How is it distributed across countries?," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    2. Muñoz, Fernando & Vicente, Ruth, 2018. "Hindsight effect: What are the actual cash flow timing skills of mutual fund investors?," Journal of Empirical Finance, Elsevier, vol. 45(C), pages 181-193.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:49:y:2014:i:01:p:249-269_00. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.