Is Investor Rationality Time Varying? Evidence from the Mutual Fund Industry*

Vincent Glode, Burton Hollifield, Marcin Kacperczyk and Shimon Kogan

Chapter 3 in Behavioral Finance:Where Do Investors' Biases Come From?, 2016, pp 67-113 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We provide novel evidence that mutual fund returns are predictable after periods of high market returns but not after periods of lowmarket returns. The asymmetric conditional predictability in relative performance cannot be fully explained by time-varying differences in transaction costs, in style exposures, or in survival probabilities of funds. Performance predictability is more pronounced for funds catering to retail investors than for funds catering to institutional investors, suggesting that unsophisticated investors make systematic mistakes in their capital allocation decisions.

Keywords: Behavioral Finance; Rationality; Experimental Finance; Reference Points; Professionals; Gender; Culture and Finance; Equity Premium (search for similar items in EconPapers)
JEL-codes: D91 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Is Investor Rationality Time Varying? Evidence from the Mutual Fund Industry (2009)
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