Abstract
We examine the effect of behavioral biases on the mutual fund choices of a large sample of US 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. Factor analysis suggests that biased investors often conform to stereotypes that can be characterized as Gambler, Smart, Overconfident, Narrow Framer, and Mature.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1-27 |
| Number of pages | 27 |
| Journal | Journal of Financial Economics |
| Volume | 102 |
| Issue number | 1 |
| DOIs | |
| State | Published - Oct 1 2011 |
Keywords
- Behavioral biases
- Factor analysis
- Individual investors
- Mutual funds
- Trend chasing
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management
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Cite this
Bailey, W., Kumar, A., & Ng, D. (2011). Behavioral biases of mutual fund investors. Journal of Financial Economics, 102(1), 1-27. https://doi.org/10.1016/j.jfineco.2011.05.002