This paper establishes a strong link between the dispersion in beliefs among active mutual funds, as revealed through their active holdings (i.e., deviations from benchmarks), and future stock returns. We find that after standard risk adjustments, stocks in the top decile portfolio with large increases in dispersion outperform those in the bottom decile by more than 1% per month. This effect of...

Using a new data set on investor sentiment, we show that institutional and individual sentiment seem to proxy for smart money and noise trader risk, respectively. First, using bias-adjusted long-horizon regressions, we show that institutional sentiment forecasts stock market returns at intermediate horizons correctly, whereas individuals consistently get the direction wrong. Second, even the si...

We exploit the restrictions of intertemporal portfolio choice in the presence of nonfinancial income risk to design and implement tests of hedging that use the information contained in the actual portfolio of the investor. We use a unique dataset of Swedish investors with information broken down at the investor level and into various components of wealth, investor income, tax positions and inve...

This paper examines whether the overall market risk, along with risks re ecting uncertainty related to the long run dynamics of market cash ows (dividends) and discount rates (returns), price average returns on single-sorted portfolios in the Greek stock market. Our results suggest that a two-beta intertemporal capital asset pricing model explains half of the cross-sectional variation in averag...

The SRI funds performances remain inconclusive. Hence, more studies need to be conducted to determine if SRI funds systematically underperform or outperform conventional funds. This paper has employed dynamic mean-variance model using shortage function approach to evaluate the performance of SRI and Environmentally friendly funds. Unlike the traditional methods, this approach estimate fund perf...

Analyzing a large sample of U.S. firms, we show that the asymmetry of stock return volatility is positively related to investor attention and differences of opinion. Using the number of analysts following a given firm to capture attention and the dispersion in analyst forecasts as a common proxy for differences of opinion, we show that the two effects are complementary. Furthermore, the effect ...

The authors examine how the co-movement between daily stock and Treasury bond returns varies with stock market uncertainty. They use the lagged implied volatility from equity index options to provide an objective, observable, and dynamic measure of stock market uncertainty. The authors find that stock and bond returns tend to move substantially together during periods of lower stock market unce...

While a mutual fund’s investment style influences the returns it generates, little is known about how a manager’s execution of the style decision affects portfolio performance. Using both holdingsand returns-based techniques to measure the consistency with which managers approach their investment mandates, we demonstrate that, on average, more style-consistent funds significantly outperform les...

We study the investment behavior of foreign investors in association with an equity market liberalization, and find a strong link between foreigners trading and local market returns. In the period following the liberalization, net purchases by foreign investors induced a permanent increase in stock prices, suggesting that local firms reduced their cost of equity capital. We also find a strong l...

This paper examines the importance of the inclusion of buy-in data in analyzing the risk of investment in works of art. Using the data set of French Impressionist paintings brought to auction from 1985 to 2001, we construct a theoretical lognormal distribution to include the value of works that are bought in-house, and use this to examine bias in the pre-sale estimates of auction experts. It tu...