Does the Smart Money Effect Exist? Evidence in Alternative Investment Funds.

• Main Authors: Wan-Zhen Lin, 林宛瑱
• Other Authors: Anchor Y. Lin
• Format: Others
• Language: zh-TW
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/ps3ahm

碩士 === 國立中興大學 === 財務金融系所 === 100 === The stock-picking ability of mutual funds has been a source of debate for decades. Previous empirical studies show that when the equity mutual funds have positive Jensen’s alpha, it implies that smart money effect exists. However, the equity mutual funds are more influenced by the financial market which has larger volatility recently, and then the performance becomes worse. Therefore, the alternative investment funds get more attentions but a few studies have explored their investment ability. For fill this gap, we explore whether “smart money” or “dumb money” effect exist in the alternative investment funds. In this paper, we defined the mutual funds which invested in non-traditional investment as “alternative investment funds”, and then our sample includes the wine funds, luxury goods funds, precious metals funds, agricultural funds, consumer goods fund, and cheap metals funds. Using the capital assets pricing model, we found that the “dumb money” effect exists in all our samples. It implies that investors can not earn more profits because these funds have better performance in next period after investors redeem their funds. Furthermore, we investigate whether the influence of financial tsunami in 2008 on the investors’ behaviors and the “smart money (or dumb money)” effect is similar during the pre-financial tsunami (2005/01~2008/06) and post-financial tsunami (2008/07~2011/12) periods. The empirical results show that the “dumb money” effect exists during the pre-financial tsunami period but disappears during the post-financial tsunami period. Finally, we construct an investment strategy based on the above results. We show that this strategy can help investors to earn positive return in 2005 to 2011, and in particular this positive performance still steady grows when the market is poor.