Gu, Ariel ORCID: https://orcid.org/0000-0002-3993-8165 and Yoo, Hong Il
(2021)
Prospect theory and mutual fund flows.
Economics Letters, 201.
ISSN 0165-1765
Abstract
We evaluate the hypothesis that investors seek portfolios that display attractive return distributions in terms of Prospect Theory (PT). We consider the mutual fund market in the U.S. as an interesting testbed because fund investors are known to be return-chasing and about a half of U.S. households own mutual funds. Using monthly flow data from 1999–2019, we find that mutual funds attract higher net flows when they have better PT values. We obtain similar results when PT is replaced with Rank-Dependent Utility, a closely related theory that does not require a particular choice of reference points. Our results are consistent with recent evidence that fund flows exhibit heightened sensitivity to extreme performance measures.
Item Type: | Article |
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Uncontrolled Keywords: | behavioral finance,mutual fund,non-expected utility,portfolio choice,prospect theory,finance,economics and econometrics ,/dk/atira/pure/subjectarea/asjc/2000/2003 |
Faculty \ School: | Faculty of Social Sciences > School of Economics |
UEA Research Groups: | Faculty of Social Sciences > Research Groups > Applied Econometrics And Finance Faculty of Social Sciences > Research Centres > Centre for Competition Policy |
Related URLs: | |
Depositing User: | LivePure Connector |
Date Deposited: | 14 Nov 2022 15:30 |
Last Modified: | 09 Jan 2024 01:36 |
URI: | https://ueaeprints.uea.ac.uk/id/eprint/89847 |
DOI: | 10.1016/j.econlet.2021.109776 |
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