The Journal of Finance

False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas

Published: 1/13/2010,  Volume: 65,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2009.01527.x  |  Cited by: 640

LAURENT BARRAS, OLIVIER SCAILLET, RUSS WERMERS

This paper develops a simple technique that controls for “false discoveries,” or mutual funds that exhibit significant alphas by luck alone. Our approach precisely separates funds into (1) unskilled, (2) zero‐alpha, and (3) skilled funds, even with dependencies in cross‐fund estimated alphas. We find that 75% of funds exhibit zero alpha (net of expenses), consistent with the Berk and Green equilibrium. Further, we find a significant proportion of skilled (positive alpha) funds prior to 1996, but almost none by 2006. We also show that controlling for false discoveries substantially improves the ability to find the few funds with persistent performance.

Skill, Scale, and Value Creation in the Mutual Fund Industry

Published: 11/29/2021,  Volume: 77,  Issue: 1  |  DOI: 10.1111/jofi.13096  |  Cited by: 74

LAURENT BARRAS, PATRICK GAGLIARDINI, OLIVIER SCAILLET

We develop a flexible and bias‐adjusted approach to jointly examine skill, scalability, and value‐added across individual funds. We find that skill and scalability (i) vary substantially across funds, and (ii) are strongly related, as great investment ideas are difficult to scale up. The combination of skill and scalability produces a value‐added that (i) is positive for the majority of funds, and (ii) approaches its optimal level after an adjustment period (possibly due to investor learning). These results are consistent with theoretical models in which funds are skilled and able to extract economic rents from capital markets.

Financial Strength and Product Market Behavior: The Real Effects of Corporate Cash Holdings

Published: 5/7/2010,  Volume: 65,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2010.01562.x  |  Cited by: 808

LAURENT FRESARD

This paper shows that large cash reserves lead to systematic future market share gains at the expense of industry rivals. Using shifts in import tariffs to identify exogenous intensification of competition, difference‐in‐difference estimations support the causal impact of cash on product market performance. Moreover, the analysis reveals that the “competitive” effect of cash is markedly distinct from the strategic effect of debt on product market outcomes. This effect is stronger when rivals face tighter financing constraints and when the number of interactions between competitors is large. Overall, the results suggest that cash policy encompasses a substantial strategic dimension.

CURRENCY TRANSFER BY DENOMINATION*

Published: 12/1972,  Volume: 27,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1972.tb03037.x  |  Cited by: 0

Robert D. Laurent

Twin Picks: Disentangling the Determinants of Risk‐Taking in Household Portfolios

Published: 3/17/2014,  Volume: 69,  Issue: 2  |  DOI: 10.1111/jofi.12125  |  Cited by: 257

LAURENT E. CALVET, PAOLO SODINI

This paper investigates risk‐taking in the liquid portfolios held by a large panel of Swedish twins. We document that the portfolio share invested in risky assets is an increasing and concave function of financial wealth, leading to different risk sensitivities across investors. Human capital, which we estimate directly from individual labor income, also affects risk‐taking positively, while internal habit and expenditure commitments tend to reduce it. Our microfindings lend strong support to decreasing relative risk aversion and habit formation preferences. Furthermore, heterogeneous risk sensitivities across investors help reconcile individual preferences with representative‐agent models.

Does Alternative Data Improve Financial Forecasting? The Horizon Effect

Published: 3/7/2024,  Volume: 79,  Issue: 3  |  DOI: 10.1111/jofi.13323  |  Cited by: 78

OLIVIER DESSAINT, THIERRY FOUCAULT, LAURENT FRESARD

Existing research suggests that alternative data are mainly informative about short‐term future outcomes. We show theoretically that the availability of short‐term‐oriented data can induce forecasters to optimally shift their attention from the long term to the short term because it reduces the cost of obtaining short‐term information. Consequently, the informativeness of their long‐term forecasts decreases, even though the informativeness of their short‐term forecasts increases. We test and confirm this prediction by considering how the informativeness of equity analysts' forecasts at various horizons varies over the long run and with their exposure to social media data.

Who Are the Value and Growth Investors?

Published: 1/12/2017,  Volume: 72,  Issue: 1  |  DOI: 10.1111/jofi.12473  |  Cited by: 112

SEBASTIEN BETERMIER, LAURENT E. CALVET, PAOLO SODINI

This paper investigates value and growth investing in a large administrative panel of Swedish residents. We show that, over the life cycle, households progressively shift from growth to value as they become older and their balance sheets improve. Furthermore, investors with high human capital and high exposure to macroeconomic risk tilt their portfolios away from value. While several behavioral biases seem evident in the data, the patterns we uncover are overall remarkably consistent with the portfolio implications of risk‐based theories of the value premium.

Can Security Design Foster Household Risk‐Taking?

Published: 5/17/2023,  Volume: 78,  Issue: 4  |  DOI: 10.1111/jofi.13232  |  Cited by: 46

LAURENT E. CALVET, CLAIRE CELERIER, PAOLO SODINI, BORIS VALLEE

This paper shows that securities with nonlinear payoff designs can foster household risk‐taking. We demonstrate this effect by exploiting the introduction of capital guarantee products in Sweden between 2002 and 2007. Their fast and broad adoption is associated with an increase in expected financial portfolio returns. The effect is especially strong for households with low‐risk appetite ex ante. These empirical facts are consistent with a life‐cycle model in which households have pessimistic beliefs or preferences combining loss aversion and narrow framing. Our results illustrate how security design can mitigate behavioral biases to increase mean household portfolio returns.

The Cross‐Section of Household Preferences

Published: 7/23/2026,  Volume: ,  Issue:   |  DOI: 10.1111/jofi.70067  |  Cited by: 0

LAURENT E. CALVET, JOHN Y. CAMPBELL, FRANCISCO GOMES, PAOLO SODINI

This paper estimates the cross‐sectional distribution of Epstein‐Zin preferences using the wealth and risky portfolio shares of a large panel of Swedish households. We find modestly heterogeneous risk aversion (standard deviation 0.97, median 7.50) and a meaningfully heterogeneous and right‐skewed time preference rate (TPR; standard deviation 7.31%, median 4.08%) and elasticity of intertemporal substitution (EIS; standard deviation 3.17, median 0.70). Risk aversion and the EIS are only very weakly negatively correlated. We estimate lower risk aversion for households with riskier labor income, and a higher TPR and lower EIS for households that enter our sample with low wealth.

Investor Factors

Published: 8/7/2025,  Volume: 80,  Issue: 5  |  DOI: 10.1111/jofi.13474  |  Cited by: 4

SEBASTIEN BETERMIER, LAURENT E. CALVET, SAMULI KNÜPFER, JENS SOERLIE KVAERNER

This paper develops an empirical methodology for extracting pricing factors from investor portfolio data. We apply this approach to the stockholdings of Norwegian individual investors from 1997 to 2017. A two‐factor model, featuring the market portfolio and a long‐short portfolio constructed from the holdings of investors sorted by age or wealth, explains both the common variation in portfolio holdings and the cross section of stock returns. Portfolio tilts toward the long‐short investor factor correlate with indebtedness, macroeconomic exposure, gender, and investment experience. Our paper illustrates the benefits of using holdings data for explaining the risk premia of financial assets.