Did Behavioral Mutual Funds Exploit Market Inefficiencies During or After the Financial Crisis?

Abstract

This study examines the performance of mutual funds that employ investment strategies based on the principles of behavioral finance, collectively known as "behavioral mutual funds". A series of performance measures is employed in order to test whether behavioral mutual funds outperform the stock market, their benchmarks or passively managed index funds, using monthly data for the period January 2007-March 2013. Results from the full sample and subperiod analysis show that behavioral mutual funds actually exhibited poor performance, both during the recent financial crisis and in its aftermath, rejecting the conjecture that the crisis period would provide an ideal environment for their strategies to be profitable by exploiting market inefficiencies and investors' behavioral biases. (JEL: G15)

Comparative Performance of Mutual Funds and Hedge Funds: Riding the COVID-19 Pandemic

“…They found that these kinds of mutual funds had significantly negative performance in that period, thus, did not have value-added for investors. (Philippas, 2014) investigate the performance of "behavioral mutual funds" that employ investment strategies based on behavioral finance principles during and after the financial crisis.…”