Fund Choice Behavior and Estimation of Switching Models: An Experiment

36 Pages Posted: 7 Mar 2013

See all articles by Mikhail Anufriev

Mikhail Anufriev

University of Technology Sydney (UTS)

Te Bao

Nanyang Technological University (NTU) - Division of Economics

Jan Tuinstra

University of Amsterdam - Department of Quantitative Economics (KE); Tinbergen Institute

Date Written: March 6, 2013

Abstract

We run a laboratory experiment that contributes to the finance literature on "return chasing behavior" studying how investors switch between mutual funds driven by past performance of the funds. The subjects in this experiment make discrete choices between several (2, 3 or 4) experimental funds in multiple periods. The time series of funds' profits are exogenously generated prior to the experiment and subjects are paid for that period according to the profit of the fund they choose. The experimental results show that the investment decision can to a large extent be explained by a discrete choice model ("switching model") with a few lags and a predisposition effect. The intensity of choice parameter/beta in the discrete choice model depends on the structure of the profit time series of the funds, and there is no evidence that it is influenced by experience.

Keywords: switching, discrete choice model, mutual fund, experimental economics, intensity of choice

JEL Classification: C25, C91, D83, G11

Suggested Citation

Anufriev, Mikhail and Bao, Te and Tuinstra, Jan, Fund Choice Behavior and Estimation of Switching Models: An Experiment (March 6, 2013). Available at SSRN: https://ssrn.com/abstract=2229402 or http://dx.doi.org/10.2139/ssrn.2229402

Mikhail Anufriev

University of Technology Sydney (UTS) ( email )

P. O. Box 123
Broadway, NSW 2007
Australia

Te Bao (Contact Author)

Nanyang Technological University (NTU) - Division of Economics ( email )

HSS 04-53, 14 Nanyang Drive
Singapore, 639798
Singapore

Jan Tuinstra

University of Amsterdam - Department of Quantitative Economics (KE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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