 Behavioral finance and the architecture of the asset management industryMichel Verlaine Journal of Economic Surveys, 2022, vol. 36, issue 5, 1454-1476 Abstract: The standard portfolio approach assumes that investors maximize expected utility, and that the Markowitz mean–variance standard portfolio optimization approach can be applied. Behavioral research, however, indicates that investors’ behavior with respect to risk or uncertainty is not consistent with expected utility. Notably, decision makers transform probabilities. Most of the academic literature integrating those aspects, however, focuses on so‐called financial market anomalies but does not focus on the structural impact those behavioral aspects might have, notably in terms of industrial organization of the asset management industry. This paper provides a survey of the asset management industry and argues that the architecture of the asset management industry is inconsistent with the standard expected utility framework. The origin of the industrial organization of the asset management industry stems from the convexity of the flow–performance relationship, which is due to prospect theory effects. The convexity of the flow–performance relationship explains the inflation of mutual funds and fund families, a phenomenon inconsistent with the Mutual Fund Separation Theorem. Date: 2022 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jecsur:v:36:y:2022:i:5:p:1454-1476 Ordering information: This journal article can be ordered from Access Statistics for this article More articles in Journal of Economic Surveys from Wiley Blackwell |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.