Do retail mutual fund investments represent “dumb money”?
AbstractThis paper highlights the“dumb money” effect of Indian retail mutual fund investors who chase funds that subsequently underperform. Retail investors show twice the propensity to chase top past performers; their cashflows are strongly negatively correlated to contemporaneous market returns indicating a contrarian, rather than a“buy and hold” strategy. They make up to 1.3% less in terms of raw returns compared to institutional investors, and the gap is accentuated for funds with superior risk-adjusted returns. Collectively, the results reveal that retail investors trade actively with poor timing and fund selection skills despite having access to professional fund management.© 2021 Published by Elsevier Ltd on behalf of the Indian Institute of Management Bangalore. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0)