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Fund Choice Behavior and Estimation of Switching Models: An Experiment

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Author Info

  • Anufriev, M.

    ()
    (University of Technology, Sydney)

  • Tuinstra, J.

    ()
    (University of Amsterdam)

  • Bao, T.

    ()
    (University van Amsterdam)

Abstract

We run a laboratory experiment that contributes to the finance literature on "return chasing behavior" studying how investors switch between mutual funds driven by past performance of the funds. The subjects in this experiment make discrete choices between several (2, 3 or 4) experimental funds in multiple periods. The time series of funds' profits are exogenously generated prior to the experiment and subjects are paid for that period according to the profit of the fund they choose. The experimental results show that the investment decision can to a large extent be explained by a discrete choice model ("switching model") with a few lags and a predisposition effect. The intensity of choice parameter \beta in the discrete choice model depends on the structure of the profit time series of the funds, and there is no evidence that it is influenced by experience.

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File URL: http://www1.fee.uva.nl/cendef/publications/papers/switching6March2013.pdf
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Bibliographic Info

Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 13-04.

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Date of creation: 2013
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Handle: RePEc:ams:ndfwpp:13-04

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Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
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Web page: http://www.fee.uva.nl/cendef/
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Cited by:
  1. Mikhail Anufriev & Dávid Kopányiz & Jan Tuinstra, 2013. "Learning Cycles in Bertrand Competition with Differentiated Commodities and Competing Learning Rules," Working Paper Series 8, Economics Discipline Group, UTS Business School, University of Technology, Sydney.

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