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Loss Averse Preferences, Performance, and Career Success of Institutional Investors

55 Pages Posted: 29 Oct 2014 Last revised: 18 May 2016

Andriy Bodnaruk

University of Illinois at Chicago

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Gaidar Institute for Economic Policy; Centre for Economic Policy Research (CEPR); SITE

Date Written: May 17, 2016

Abstract

Using survey-based measures of mutual fund manager loss aversion, we study the effects of institutional investor preferences on their investment decisions, performance, and career outcomes. We find that managers with higher aversion to losses choose portfolios with lower downside risk, increase their riskiness more in response to poor past performance, and display a stronger disposition effect. Further, we provide evidence that more loss-averse managers have lower performance and are more likely to have their contracts terminated.

Keywords: loss-aversion, downside risk, professional investors, mutual funds, career outcomes

JEL Classification: C91, G11, G20, G23, J24, J41

Suggested Citation

Bodnaruk, Andriy and Simonov, Andrei, Loss Averse Preferences, Performance, and Career Success of Institutional Investors (May 17, 2016). Available at SSRN: https://ssrn.com/abstract=2515396 or http://dx.doi.org/10.2139/ssrn.2515396

Andriy Bodnaruk (Contact Author)

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management ( email )

645 N. Shaw Lane, 321 Eppley Center
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.andreisimonov.com

Gaidar Institute for Economic Policy ( email )

3-5 Gazetny Lane
Moscow, 125009
Russia

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

SITE ( email )

P.O. Box 6501
S-113 83 Stockholm, 11383
Sweden

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