Risk estimation bias and mutual fund performance

Research output: Contribution to journalArticlepeer-review


Purpose: The purpose of this paper is to create a quantitative measure that captures the effects of investor sentiment in an objective way. Design/methodology/approach: The author introduced risk estimation bias (REB) to examine the effects of forecasting error of future market volatility on fund alpha. The author also used GARCH to model the volatility of the REB. Findings: The author documented a statistically significant relation between REB and realized market volatility. The author also found that the REB plays a significant role in explaining fund alpha. Originality/value: REB is the first quantitative measure to examine the effects of investor sentiment on risk estimation and fund performance. The GRACH properties of REB provide important information on how investor sentiment fluctuates over time.

Original languageEnglish (US)
Pages (from-to)426-440
Number of pages15
JournalReview of Behavioral Finance
Issue number4
StatePublished - Nov 20 2019

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Strategy and Management


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