Document Type

Article

Publication Date

2-2013

Publication Title

Journal of Financial and Quantitative Analysis

Volume

45

Pages

165-191

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 which 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.

Comments

Author Posting. © 2014 Michael G. Foster School of Business, University of Washington. This article is posted here by permission of Cambridge University Press for personal use, not for redistribution. The definitive version was published in the Journal of Financial and Quantitative Analysis, Volume 49, Issue 1, pp. 165-191. http://dx.doi.org/10.1017/S0022109014000179

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