IDEAS home Printed from https://ideas.repec.org/a/bla/jfinan/v74y2019i2p1025-1075.html
   My bibliography  Save this article

Cautious Risk Takers: Investor Preferences and Demand for Active Management

Author

Listed:
  • VALERY POLKOVNICHENKO
  • KELSEY D. WEI
  • FENG ZHAO

Abstract

Despite their mediocre mean performance, actively managed mutual funds are distinct from passive funds in their return distributions. Active value funds better hedge downside risk, while active growth funds better capture upside potential. Since such performance features may appeal to investors with tail‐overweighting preferences, we show that preferences for downside protection and upside potential estimated from the empirical pricing kernel can help explain active fund flows in the value and growth categories, respectively. This effect of investor risk preferences varies significantly with funds' downside‐hedging and upside‐capturing ability, with levels of active management, and across retirement and retail funds.

Suggested Citation

  • Valery Polkovnichenko & Kelsey D. Wei & Feng Zhao, 2019. "Cautious Risk Takers: Investor Preferences and Demand for Active Management," Journal of Finance, American Finance Association, vol. 74(2), pages 1025-1075, April.
    • Handle: RePEc:bla:jfinan:v:74:y:2019:i:2:p:1025-1075
    DOI: 10.1111/jofi.12747
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jofi.12747
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jofi.12747?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Christoph Frei & Liam Welsh, 2022. "How the Closure of a U.S. Tax Loophole May Affect Investor Portfolios," JRFM, MDPI, vol. 15(5), pages 1-10, May.
    2. Gupta, Nilesh & Mishra, Anil V & Jacob, Joshy, 2022. "Prospect theory preferences and global mutual fund flows," Journal of International Money and Finance, Elsevier, vol. 125(C).
    3. Leonard Kostovetsky & Jerold B. Warner, 2020. "Measuring Innovation and Product Differentiation: Evidence from Mutual Funds," Journal of Finance, American Finance Association, vol. 75(2), pages 779-823, April.
    4. Gu, Ariel & Yoo, Hong Il, 2021. "Prospect Theory and Mutual Fund Flows," Economics Letters, Elsevier, vol. 201(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:74:y:2019:i:2:p:1025-1075. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/afaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.