Audited Annual Report JPMorgan Investment Funds

We also demonstrate that optimal portfolios of mutual funds are in°uenced substantially by prior beliefs about both managerial skill and pricing models. For example, consider two investors who both rule out managerial skill but believe strongly in di®erent models: one believes in the CAPM while the other embraces a four-factor model. If either investor is forced to hold the portfolio chosen by the other, the resulting ex ante loss is about 60 basis points per month in certainty equivalent return. 2 A possibly °awed pricing model is still useful in identifying optimal portfolios because it allows the model's benchmark assets to supply information about the funds' expected returns. Consider,...
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Audited Annual Report JPMorgan Investment Funds