Reference : Do Fund Investors Know that Risk is Sometimes not Priced?
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Business & economic sciences : Finance
http://hdl.handle.net/10993/9225
Do Fund Investors Know that Risk is Sometimes not Priced?
English
IREK, Fabian mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Luxembourg School of Finance (LSF) >]
Lehnert, Thorsten mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Luxembourg School of Finance (LSF) >]
Aug-2013
No
[en] Previous research suggests that investor sentiment has an influence on the market's risk-return trade-off. Noise tradersídemand for assets is considered to be risk independent and, as a result, risky assets do not offer a risk premium when demand is high. We show that market risk is only a priced factor of expected fund returns when investor sentiment is low. Furthermore, fund investors seem aware that risk is sometimes not priced. During high sentiment periods, "smart" investors buy safe funds that subsequently outperform and sell risky funds that subsequently underperform. Our results are statistically and economically significant.
http://hdl.handle.net/10993/9225
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2136899

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