Behavioral biases of mutual fund investors

Warren Bailey, Alok Kumar, David Ng

Research output: Contribution to journalArticle

86 Citations (Scopus)

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 languageEnglish (US)
Pages (from-to)1-27
Number of pages27
JournalJournal of Financial Economics
Volume102
Issue number1
DOIs
StatePublished - Oct 2011

Fingerprint

Behavioral biases
Investors
Mutual funds
Brokerage
News
Expenses
Demographic characteristics
Managerial skills
Familiarity
Tax
Factor analysis
Stereotypes
Discount

Keywords

  • Behavioral biases
  • Factor analysis
  • Individual investors
  • Mutual funds
  • Trend chasing

ASJC Scopus subject areas

  • Accounting
  • Strategy and Management
  • Economics and Econometrics
  • Finance

Cite this

Behavioral biases of mutual fund investors. / Bailey, Warren; Kumar, Alok; Ng, David.

In: Journal of Financial Economics, Vol. 102, No. 1, 10.2011, p. 1-27.

Research output: Contribution to journalArticle

Bailey, Warren ; Kumar, Alok ; Ng, David. / Behavioral biases of mutual fund investors. In: Journal of Financial Economics. 2011 ; Vol. 102, No. 1. pp. 1-27.
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