Disclaimer dynamics in mutual fund: prospect theory and investment experience perspective

Leena B. Dam and Medha Kulkarni

Vilakshan - XIMB Journal of Management, 2025, vol. 23, issue 1, 41-53

Abstract: PurposeProspect theory suggests that investors’ investment choices are influenced by expected outcomes as well as subjective sensitivities of losses and gains. Statutory disclaimers of mutual funds refer to how asset management companies (AMCs) communicate important legal information to investors. This study explored how prospect theory mediates the relationship between statutory disclaimers and investors’ decisions, with a focus on how investors’ experience in the field might influence this dynamic. This study aims to examine whether investor experience could moderate the relationship between familiarity with prospect theory and investment choices.Design/methodology/approachThis study involved 268 participants. Data were analyzed using PLS-SEM.FindingsThe findings indicate that simply being familiar with prospect theory does not significantly affect investment decisions when statutory disclaimers are involved. However, investment experience plays a critical role in how investors apply prospect theory in their decision-making. This suggests that seasoned investors might use prospect theory in a different way compared to less experienced investors when considering investment decisions influenced by statutory disclaimers. AMCs may design creative disclaimers for investors according to their level of receptivity.Originality/valueCombination of prospect theory and investment experience offers a fresh perspective, highlighting the complex interactions between regulatory factors and investor behavior.

Keywords: Prospect theory; Mutual fund disclaimer; Loss aversion; Investor experience (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:xjmpps:xjm-09-2024-0151

DOI: 10.1108/XJM-09-2024-0151

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