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!
Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik
RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung
The more objects we make "smart," from watches to entire buildings, the greater the need for these devices to store and retrieve massive amounts of data quickly without consuming too much power.
Millions of new memory cells could be part of a computer chip and provide that speed and energy savings, thanks to the discovery of a previously unobserved...
What if, instead of turning up the thermostat, you could warm up with high-tech, flexible patches sewn into your clothes - while significantly reducing your...
A widely used diabetes medication combined with an antihypertensive drug specifically inhibits tumor growth – this was discovered by researchers from the University of Basel’s Biozentrum two years ago. In a follow-up study, recently published in “Cell Reports”, the scientists report that this drug cocktail induces cancer cell death by switching off their energy supply.
The widely used anti-diabetes drug metformin not only reduces blood sugar but also has an anti-cancer effect. However, the metformin dose commonly used in the...
A research team from the University of Zurich has developed a new drone that can retract its propeller arms in flight and make itself small to fit through narrow gaps and holes. This is particularly useful when searching for victims of natural disasters.
Inspecting a damaged building after an earthquake or during a fire is exactly the kind of job that human rescuers would like drones to do for them. A flying...
Over the last decade, there has been much excitement about the discovery, recognised by the Nobel Prize in Physics only two years ago, that there are two types...
12.12.2018 | Event News
10.12.2018 | Event News
06.12.2018 | Event News
14.12.2018 | Power and Electrical Engineering
14.12.2018 | Physics and Astronomy
14.12.2018 | Physics and Astronomy