Abstract
We investigate the dual notions that "dumb money" exacerbates well-known stock return anomalies and "smart money" attenuates these anomalies. We find that aggregate flows to mutual funds (dumb money) appear to exacerbate cross-sectional mispricing, particularly for growth, accrual, and momentum anomalies. In contrast, hedge fund flows (smart money) appear to attenuate aggregate mispricing. Our results suggest that aggregate flows to mutual funds can have real adverse allocation effects in the stock market and that aggregate flows to hedge funds contribute to the correction of cross-sectional mispricing.
| Original language | English |
|---|---|
| Article number | 2570 |
| Pages (from-to) | 355-382 |
| Number of pages | 28 |
| Journal | Journal of Financial Economics |
| Volume | 118 |
| Issue number | 2 |
| DOIs | |
| State | Published - Nov 2015 |
Keywords
- Fund flows
- Hedge funds
- Mispricing
- Mutual funds
- Stock return anomalies
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Cite this
Akbas, F., Armstrong, W. J., Sorescu, S., & Subrahmanyam, A. (2015). Smart money, dumb money, and capital market anomalies. Journal of Financial Economics, 118(2), 355-382. [2570]. https://doi.org/10.1016/j.jfineco.2015.07.003