Behavioral Biases of Mutual Fund Investors

Warren Bailey, Alok Kumar and David Ng
Additional contact information
Warren Bailey: Cornell University
Alok Kumar: Miami University and University of TX
David Ng: University of PA and Cornell University

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: We examine the effect of behavioral biases on the mutual fund choices of a large sample of U.S. discount brokerage investors using new measures of attention to news, tax awareness, and fund-level familiarity bias, in addition to behavioral and demographic characteristics of earlier studies. Behaviorally-biased investors typically make poor decisions about fund style and expenses, trading frequency, and timing, resulting in poor performance. Furthermore, trend-chasing appears related to behavioral biases, rather than to rationally inferring managerial skill from past performance. Beyond documenting the importance of behavioral factors in the delegated management setting of mutual funds, applying factor analysis to the individual behavioral bias measures and other characteristics identifies several investor stereotypes that we relate to mutual fund trading and performance.

JEL-codes: D03 G11 (search for similar items in EconPapers)
Date: 2010-07
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Citations: View citations in EconPapers (8)

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