Behavioral Biases of Mutual Fund Investors
University of Miami - School of Business Administration
David T. Ng
July 16, 2010
Journal of Financial Economics (JFE), Forthcoming
AFA 2009 San Francisco Meetings Paper
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. Factor analysis suggests that biased investors often conform to stereotypes that can be characterized as “gambler”, “smart”, “overconfident”, “narrow-framer”, and “mature”.
Number of Pages in PDF File: 69
Keywords: Individual investors, behavioral biases, disposition effect, narrow framing, mutual fund investments
JEL Classification: G11, G14
Date posted: March 20, 2008 ; Last revised: July 19, 2010
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