Salience theory and mutual fund flows: Empirical evidence from China

Shiyang Hu, Cheng Xiang and Xiaofeng Quan

Emerging Markets Review, 2023, vol. 54, issue C

Abstract: Using a sample of Chinese mutual funds during 2004–2020, we provide empirical evidence on the salience theory, which argues that individuals' decision weights on risky asset choices are distorted in favor of salient payoffs. Specifically, we document robust and casual impacts of funds' salience theory values on their future flows. The impacts are not explained by investors' attention-driven purchases, funds' lottery-like features, or the characteristics of funds' underlying stocks. Further tests show that the impacts are larger for funds with more shares held by individual investors and are more pronounced when investor sentiment is higher.

Keywords: Salience theory; Limited attention; Mutual fund flows; MAX effect; Lottery preferences (search for similar items in EconPapers)
JEL-codes: G11 G23 G41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:54:y:2023:i:c:s1566014122001054

DOI: 10.1016/j.ememar.2022.100988

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