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Loss-Averse Preferences, Performance, and Career Success of Institutional Investors

Author

Listed:
  • Andriy Bodnaruk
  • Andrei Simonov

Abstract

Using survey-based measures of mutual fund manager loss aversion, we study the effects of institutional investor preferences on their investment decisions, performance, and career outcomes. We find that managers with higher aversion to losses choose portfolios with lower downside risk, increase their risk-taking more in response to poor past performance, and display a stronger disposition effect. Further, we provide evidence that managers who are more loss-averse have lower performance and are more likely to have their contracts terminated.Received December 3, 2014; editorial decision May 25, 2016 by Editor Andrew Karolyi.

Suggested Citation

  • Andriy Bodnaruk & Andrei Simonov, 2016. "Loss-Averse Preferences, Performance, and Career Success of Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 29(11), pages 3140-3176.
    • Handle: RePEc:oup:rfinst:v:29:y:2016:i:11:p:3140-3176.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhw053
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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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