Whose Money is Smart? Mutual Fund Purchases of Private Investors

29 Pages Posted: 18 Feb 2009 Last revised: 16 Mar 2009

See all articles by Fabian Niebling

Fabian Niebling

affiliation not provided to SSRN

Steffen Meyer

University of Southern Denmark - Department of Business and Economics; Danish Finance Institute

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE

Date Written: February 15, 2009

Abstract

This paper contributes to the growing body of literature on mutual fund purchasing decisions, smart investment decision making and household finance. By using administrative data allowing for an empirical analysis on investor-specific level we derive three key findings. First, it is shown that lacking investor sophistication is the dominant driver preventing investors from chasing historical performance. Second, we find that smart investment decisions are made by investors that are older, more experienced, wealthier and less overconfident. Financial advice only improves fund selection if initial charges are not taken into account. Third, evidence on the economic impact of smart decision making is provided, pointing out that smart investor realizes an on average 127bp higher portfolio return per year.

Keywords: Smart decision making, Mutual funds, Fund selection criterion, Household finance, Cost of investment mistakes

JEL Classification: D14, G11, G23

Suggested Citation

Niebling, Fabian and Meyer, Steffen and Hackethal, Andreas, Whose Money is Smart? Mutual Fund Purchases of Private Investors (February 15, 2009). Available at SSRN: https://ssrn.com/abstract=1343638 or http://dx.doi.org/10.2139/ssrn.1343638

Fabian Niebling

affiliation not provided to SSRN ( email )

Steffen Meyer (Contact Author)

University of Southern Denmark - Department of Business and Economics ( email )

DK-5230 Odense
Denmark

Danish Finance Institute ( email )

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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