Behavioral biases of mutual fund investors

Warren Bailey; Alok Kumar; David Ng

doi:10.1016/j.jfineco.2011.05.002

Behavioral biases of mutual fund investors

Warren Bailey, Alok Kumar, David Ng

Finance

Research output: Contribution to journal › Article

92 Scopus citations

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	https://doi.org/10.1016/j.jfineco.2011.05.002
State	Published - Oct 1 2011

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Keywords

Behavioral biases
Factor analysis
Individual investors
Mutual funds
Trend chasing

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics
Strategy and Management

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

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Access to Document

10.1016/j.jfineco.2011.05.002