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Do AI-powered mutual funds perform better?

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  • Chen, Rui
  • Ren, Jinjuan

Abstract

We evaluate the performance of artificial intelligence (AI)-powered mutual funds. We find that these funds do not outperform the market per se. However, a comparison shows that AI-powered funds significantly outperform their human-managed peer funds. We further show that the outperformance of AI funds is attributable to their lower transaction cost, superior stock-picking capability, and reduced behavioral biases.

Suggested Citation

  • Chen, Rui & Ren, Jinjuan, 2022. "Do AI-powered mutual funds perform better?," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005547
    DOI: 10.1016/j.frl.2021.102616
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    Cited by:

    1. Zhang, Junsheng & Peng, Zezhi & Zeng, Yamin & Yang, Haisheng, 2023. "Do big data mutual funds outperform?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    2. Caparrini, Antonio & Arroyo, Javier & Escayola Mansilla, Jordi, 2024. "S&P 500 stock selection using machine learning classifiers: A look into the changing role of factors," Research in International Business and Finance, Elsevier, vol. 70(PA).
    3. Ko, Hyungjin & Byun, Junyoung & Lee, Jaewook, 2023. "A privacy-preserving robo-advisory system with the Black-Litterman portfolio model: A new framework and insights into investor behavior," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).
    4. Chen, Xun-Qi & Ma, Chao-Qun & Ren, Yi-Shuai & Lei, Yu-Tian & Huynh, Ngoc Quang Anh & Narayan, Seema, 2023. "Explainable artificial intelligence in finance: A bibliometric review," Finance Research Letters, Elsevier, vol. 56(C).
    5. Byun, Junyoung & Ko, Hyungjin & Lee, Jaewook, 2023. "A Privacy-preserving mean–variance optimal portfolio," Finance Research Letters, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Artificial intelligence; Mutual fund performance; Behavioral biases;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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