Mutual fund trades and the value of contradictory private information

摘要

We investigate the performance of mutual funds that trade using private information. These funds are uniquely identified from a set of 2730 funds with 44,315 fund-periods between 1994 and 2005. We com- pare the alignment of fund trades with brokers' recommendations, which we regard as "public information" in the universe of informed and uninformed mutual funds. Funds that systematically trade counter to the public information form a homogenous subset of the privately informed funds. By using private information that contradicts the public information, these funds exhibit a superior average performance. After we control for serial correlation in fund returns, we assess this advantage as being an economically significant 1.7% per annum. We also show empirically that smaller funds are better able to capture the benefit of private information.