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Behavioral Biases of Mutual Fund Investors

  • Bailey, Warren

    (Cornell University)

  • Kumar, Alok

    (Miami University and University of TX)

  • Ng, David

    (University of PA and Cornell University)

Registered author(s):

    We examine the effect of behavioral biases on the mutual fund choices of a large sample of U.S. discount brokerage investors using new measures of attention to news, tax awareness, and fund-level familiarity bias, in addition to behavioral and demographic characteristics of earlier studies. Behaviorally-biased investors typically make poor decisions about fund style and expenses, trading frequency, and timing, resulting in poor performance. Furthermore, trend-chasing appears related to behavioral biases, rather than to rationally inferring managerial skill from past performance. Beyond documenting the importance of behavioral factors in the delegated management setting of mutual funds, applying factor analysis to the individual behavioral bias measures and other characteristics identifies several investor stereotypes that we relate to mutual fund trading and performance.

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    File URL: http://fic.wharton.upenn.edu/fic/papers/10/10-23.pdf
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    Paper provided by University of Pennsylvania, Wharton School, Weiss Center in its series Working Papers with number 10-23.

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    Date of creation: Jul 2010
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    Handle: RePEc:ecl:upafin:10-23
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