Do Funds with More CAPM Investors Perform Better?

You Zhou; Peng Li; Charlie X. Cai; Kevin Keasey

doi:10.1007/s11156-026-01535-4

Do Funds with More CAPM Investors Perform Better?

You Zhou
, Peng Li
, Charlie X. Cai
, Kevin Keasey

University of Leeds
University of Liverpool

Research output: Contribution to journal › Article › peer-review

Abstract

Utilizing Shapley decomposition, we provide a clear ranking of fund flow determinants, including performance and non-performance attributes. This approach enables us to infer investor sophistication by examining which flow drivers are linked to future fund returns. Sophisticated investors primarily focus on CAPM-alpha but do not solely rely on it. Funds with higher R-squared values for CAPM-alpha consistently outperform in both short and long terms. This holds true irrespective of whether CAPM-alpha is employed in a momentum or contrarian strategy for directing fund flows. Our findings emphasize the need to consider investor heterogeneity and private information in benchmark usage studies. We find that, contrary to average behavior, CAPM-focused investors exhibit sophistication by integrating private signals to make performance predictions.

Original language	English
Journal	Review of Quantitative Finance and Accounting
Early online date	20 Jun 2026
DOIs	https://doi.org/10.1007/s11156-026-01535-4
Publication status	E-pub ahead of print - 20 Jun 2026

Data Availability Statement

The data used in this study are available from commercial databases subject to licence restrictions. Data are therefore not publicly available, but may be accessed by authorised users through the relevant data providers.

Acknowledgements

We would like to thank the following for their encouraging and constructive comments—Paolo Pasquariello (the Editor), two referees, Brad Barber, Itzhak Ben-David, Dong Lou, Diane Del Guercio, Aneel Keswani, Vikas Agarwal, Martijn Cremers, Francesco Franzoni, and participants from the FMA 2020 (Jiacui Li, discussant of a different version of the paper that led to the development of this new study) and the Annual Conference of the BAFA Financial Markets and Institutions and Northern Area Groups, York, 2022. Errors are our own.

Funding

Not applicable.

Keywords

CAPM
Mutual-fund flows
Non-risk factors
Risk factors
Smart-money effect

ASJC Scopus subject areas

Accounting
General Business,Management and Accounting
Finance

Access to Document

10.1007/s11156-026-01535-4Licence: CC BY

Cite this

@article{228b36484c3747568e06aacb99dea1a1,

title = "Do Funds with More CAPM Investors Perform Better?",

abstract = "Utilizing Shapley decomposition, we provide a clear ranking of fund flow determinants, including performance and non-performance attributes. This approach enables us to infer investor sophistication by examining which flow drivers are linked to future fund returns. Sophisticated investors primarily focus on CAPM-alpha but do not solely rely on it. Funds with higher R-squared values for CAPM-alpha consistently outperform in both short and long terms. This holds true irrespective of whether CAPM-alpha is employed in a momentum or contrarian strategy for directing fund flows. Our findings emphasize the need to consider investor heterogeneity and private information in benchmark usage studies. We find that, contrary to average behavior, CAPM-focused investors exhibit sophistication by integrating private signals to make performance predictions.",

keywords = "CAPM, Mutual-fund flows, Non-risk factors, Risk factors, Smart-money effect",

author = "You Zhou and Peng Li and Cai, \{Charlie X.\} and Kevin Keasey",

year = "2026",

month = jun,

day = "20",

doi = "10.1007/s11156-026-01535-4",

language = "English",

journal = "Review of Quantitative Finance and Accounting",