Matti Keloharju wins the EFA 2010 Best Conference Paper Award
Professor Matti Keloharju has won the Best Conference Paper Award at the 2010 European Finance Association Meeting in Frankfurt. The title of the winning paper is “Do Smart Investors Outperform Dumb Investors?” and it is a joint work with Professors Mark Grinblatt (University of California in Los Angeles) and Juhani Linnainmaa (University of Chicago).
The Best Paper Award is the highest distinction awarded for an academic paper during this prestigious conference. More than 1300 manuscripts were submitted to the conference, 220 were selected to its program, and three papers were awarded the Best Paper Prize.
The awarded paper is the first to uncover a direct link between cognitive ability and investment performance. Combining data from ability tests performed by the military with trading records of 87,000 investors, the paper finds that smart investors’ purchases are informative about future stock price movements. The influence of ability on stock-picking skill is particularly strong for returns measured two days after the trade, when the purchases of the smartest investors outperform the purchases of their below-average ability peers at an annualized rate of about 11% per year. High ability investors’ purchases earn superior and significant returns up to one month in the future. The performance of smart investors’ sell transactions does not differ significantly from that of their lower-ability peers.
Matti Keloharju is a Professor of Finance at the Aalto University School of Economics and a leading authority in the area of Behavioral Finance.
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