Research and Insights Library

Past Performance is Indicative of Future Beliefs

Abstract:

The performance of the average investor in an asset class lags the average performance of the asset class itself by an average of one percent per year over the past fifteen years, based on net investor mutual fund cash flows. Philip Z. Maymin and Gregg S. Fisher present a model in which a representative behavioral investor believes next year’s returns will exactly match last year’s returns and show that this leads to price adjustments on what would otherwise be random walk securities that effectively lower the future return of high performers and raise the future return of poor performers. The average predicted behavioral lag indeed matches the observed lag when asset returns are normally distributed with a mean and standard deviation equivalent to historical fifteen year averages of six percent and eighteen percent, respectively, and when the representative investor increases his allocation by 25 percent more than the return itself. In other words, investors chase returns and in doing so create the conditions of their own demise.

 Click here to download a PDF of the full article

[contact-form-7 id="5165" title="Exit Intent - Mailing List Signup"]

Please leave this field empty.

[contact-form-7 id="5164" title="Exit Intent - Speak To Our Team Members"]

Please leave this field empty.


Gerstein Fisher
Content Locked
Gerstein Fisher would like to send you periodic email updates. For instant access to this video, please enter your email address into field below. Thank you! Click here to go back.