 Prospect theory preferences and global mutual fund flowsNilesh Gupta, Anil Mishra () and Joshy Jacob Journal of International Money and Finance, 2022, vol. 125, issue C Abstract: We examine the influence of Cumulative Prospect Theory (CPT) characteristics of fund returns on investment flows with a cross-country data of equity mutual funds. We find that a larger CPT value of the style-adjusted past returns is associated with higher fund flows in the subsequent quarter. The impact is greater for retail-oriented funds, relatively younger funds, and those with higher active share. While funds that score high on the CPT value attract incremental fund flows, they earn a lower alpha than their peers in the following year. The sensitivity of fund flows to the CPT characteristics is higher in countries with greater individualism and short-term orientation. The results are robust to several additional tests and hold across various subsamples of our data. The findings imply that investors have misplaced expectations about the future performance of funds that show higher CPT values and the fund managers cater to these investor preferences. Keywords: Fund flows; mutual funds; Cumulative Prospect Theory; biases (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:125:y:2022:i:c:s0261560622000432 DOI: 10.1016/j.jimonfin.2022.102640 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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