Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Financial experts may not always be so expert new Notre Dame study reveals

06.11.2014

When in doubt, an expert always knows better. Except in the case of mutual-fund managers. There may be some room for doubt in their case a new study by Andriy Bodnaruk, an assistant finance professor at the University of Notre Dame, and colleague Andrei Simonov from Michigan State University, suggests.

Bodnaruk and Simonov studied 84 mutual-fund managers in Sweden to determine how well they manage their own finances.

"We asked the question whether financial experts make better investment decisions than ordinary investors," Bodnaruk said.

"We identified a group of investors who have an extensive knowledge of finance attained through prior training and day-to-day experience with financial markets, namely mutual fund managers, and compared private investment decisions by these financial experts to those made by individual investors who are similar to them along a number of socio-economic characteristics, but presumably lack financial expertise."

Bodnaruk noted that he and Simonov did not investigate the performance of the mutual funds managed by these managers, but instead looked at the manager's own personal portfolios.

"We found that financial experts are no different from peer investors: they do not have ability to pick outperforming stocks, they do not manage risk of their portfolios in better ways, and they trade as often as other investors," Bodmaruk said. "The only time experts do better than non-experts is when they have access to better information stemming from their workplace."

The study implies that for an average investor, particularly for wealthy, educated investors, paying for financial advice or investing in actively managed mutual funds is not worth it.

"Most experts will not help you improve your performance beyond what could be achieved by investing in passive indexes," Bodnaruk said.

However, don't be too hard on professed mutual-fund managers. The researchers point out that theirs is not an easy task.

"Outperforming the stock market is very difficult and the overwhelming majority of investors, including experts, do not have the skill to do it," Bodnaruk said. "Markets by and large are efficient to the degree that very few investors can consistently perform better than a fair reward for the risk assumed. Given this, investors should not chase expert talent, but instead focus on passive strategies which help minimize trading costs."

The study appears in the Journal of Financial Intermediation.

Andriy Bodnaruk | EurekAlert!
Further information:
http://www.nd.edu/

More articles from Business and Finance:

nachricht Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)

nachricht Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Manipulating Electron Spins Without Loss of Information

Physicists have developed a new technique that uses electrical voltages to control the electron spin on a chip. The newly-developed method provides protection from spin decay, meaning that the contained information can be maintained and transmitted over comparatively large distances, as has been demonstrated by a team from the University of Basel’s Department of Physics and the Swiss Nanoscience Institute. The results have been published in Physical Review X.

For several years, researchers have been trying to use the spin of an electron to store and transmit information. The spin of each electron is always coupled...

Im Focus: The proton precisely weighted

What is the mass of a proton? Scientists from Germany and Japan successfully did an important step towards the most exact knowledge of this fundamental constant. By means of precision measurements on a single proton, they could improve the precision by a factor of three and also correct the existing value.

To determine the mass of a single proton still more accurate – a group of physicists led by Klaus Blaum and Sven Sturm of the Max Planck Institute for Nuclear...

Im Focus: On the way to a biological alternative

A bacterial enzyme enables reactions that open up alternatives to key industrial chemical processes

The research team of Prof. Dr. Oliver Einsle at the University of Freiburg's Institute of Biochemistry has long been exploring the functioning of nitrogenase....

Im Focus: The 1 trillion tonne iceberg

Larsen C Ice Shelf rift finally breaks through

A one trillion tonne iceberg - one of the biggest ever recorded -- has calved away from the Larsen C Ice Shelf in Antarctica, after a rift in the ice,...

Im Focus: Laser-cooled ions contribute to better understanding of friction

Physics supports biology: Researchers from PTB have developed a model system to investigate friction phenomena with atomic precision

Friction: what you want from car brakes, otherwise rather a nuisance. In any case, it is useful to know as precisely as possible how friction phenomena arise –...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

»We are bringing Additive Manufacturing to SMEs«

19.07.2017 | Event News

The technology with a feel for feelings

12.07.2017 | Event News

Leipzig HTP-Forum discusses "hydrothermal processes" as a key technology for a biobased economy

12.07.2017 | Event News

 
Latest News

Researchers create new technique for manipulating polarization of terahertz radiation

20.07.2017 | Information Technology

High-tech sensing illuminates concrete stress testing

20.07.2017 | Materials Sciences

First direct observation and measurement of ultra-fast moving vortices in superconductors

20.07.2017 | Physics and Astronomy

VideoLinks
B2B-VideoLinks
More VideoLinks >>>