Owen Lamont’s paper “Dumb Money: Mutual Fund Flows and the Cross-Section of Stock Returns” with Andrea Frazzini (Chicago) was featured in Forbes andBusiness Line (The Hindu). The NBER paper examines how investor sentiment affects stock prices. Among the findings: on average, retail investors reallocate their money to funds that invest in stocks that have low returns. “Therefore, mutual fund investors are dumb in the sense that their reallocations reduce their wealth on average. We call this predictability the ‘dumb money’ effect,” they wrote.
September 1, 2005