Journal of Financial and Quantitative Analysis
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.
Swasti Gupta-Mukherjee (2014). Investing in the “New Economy”: Mutual Fund Performance and the Nature of the Firm. Journal of Financial and Quantitative Analysis, 49, pp 165-191. doi:10.1017/S0022109014000179.
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