Mutual funds and mispriced stocks

Doron Avramov*, Si Cheng*, Allaudeen Hameed*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Scopus citations


We propose a new measure of fund investment skill, active fund overpricing (AFO), encapsulating the fund's active share of investments, the direction of fund active bets with regard to mispriced stocks, and the dispersion of mispriced stocks in the fund's investment opportunity set. We find that fund activeness is not sufficient for outperformance: high (low) AFO funds taking active bets on the wrong (right) side of stock mispricing achieve inferior (superior) fund performance. However, high AFO funds receive higher flows during periods of high investor sentiment, when the performance-flow relation becomes weaker.

Original languageAmerican English
Pages (from-to)2372-2395
Number of pages24
JournalManagement Science
Issue number6
StatePublished - Jun 2020

Bibliographical note

Funding Information:
History: Accepted by Karl Diether, finance. Funding: This work was supported by a National University of Singapore Academic Research Grant [AcRF Tier 1 Grant R-315-000-124-115] to A. Hameed. Supplemental Material: The internet appendix is available at

Publisher Copyright:
© 2019 INFORMS


  • Managerial skills
  • Mispricing
  • Mutual funds


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