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Behavioral Biases of Mutual Fund Investors

Warren Bailey

Cornell University

Alok Kumar

University of Miami - School of Business Administration

David T. Ng

Cornell University

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

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Date posted: March 20, 2008 ; Last revised: July 19, 2010

Suggested Citation

Bailey, Warren and Kumar, Alok and Ng, David T., Behavioral Biases of Mutual Fund Investors (July 16, 2010). Journal of Financial Economics (JFE), Forthcoming; AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1108163

Contact Information

Warren B. Bailey
Cornell University ( email )
Samuel CurtisJohnson Graduate School of Management
387 Sage Hall
Ithaca, NY 14853-6201
United States
607-255-4627 (Phone)
607-254-4590 (Fax)
HOME PAGE: http://courses.cit.cornell.edu/wbb1/

Alok Kumar
University of Miami - School of Business Administration ( email )
514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)
HOME PAGE: http://moya.bus.miami.edu/~akumar
David T. Ng (Contact Author)
Cornell University ( email )
Ithaca, NY 14853
United States
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