The authors write: “In all cases of flows, differences in performances between highest and lowest flow portfolios no longer persist after 1 month.” The short-term horizon could explain why studies using quarterly flow data do not find the smart money effect. In addition, remember that in terms of inflows, the authors found smart money is only smart in the case of small funds (funds with limited asset size). On an equal-weighted basis, the four-factor (market beta, size, value and momentum) alpha difference between positive and negative net flow portfolios was 0.068 percent per month, and was statistically significant at the 5 percent confidence level. On a value-weighted basis, while the returns were still positive, there was no longer any statistically significant alpha.
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