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How Fast Do Investors Learn? Asset Management Investors and Bayesian Learning

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  • Christopher Schwarz
  • Zheng Sun

Abstract

We study the speed with which investors learn about managers’ skills by examining how quickly investor and managers’ beliefs converge. After showing our measure proxies for the change in the dispersion of beliefs, we find that hedge fund investors learn as fast as suggested by Bayes’ rule. However, we find mutual fund investors learn more slowly than suggested by Bayes’ rule. Mutual fund investors’ slow learning is not due to the use of different performance measures, institutional frictions, or lack of sophistication, but could be due to a low payoff from learning. Our results indicate learning speed depends on financial participants’ incentives.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Christopher Schwarz & Zheng Sun, 2023. "How Fast Do Investors Learn? Asset Management Investors and Bayesian Learning," The Review of Financial Studies, Society for Financial Studies, vol. 36(6), pages 2397-2430.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:6:p:2397-2430.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac086
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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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