Investor behavior and the persistence of poorly-performing mutual funds

Harless, David W.; Peterson, Steven P.

doi:10.1016/s0167-2681(98)00093-6

Cited by 64 publications

(19 citation statements)

References 25 publications

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“…This variable is defined as the net‐inflows into fund i 's family net of the inflows of fund i . Examples for family specific factors influencing inflows are marketing efforts boosting the whole family and additional services offered by the fund company like, e.g., telephone hotlines or defined contribution plans (see, e.g., Harless and Peterson, 1998).…”

Section: Modelmentioning

confidence: 99%

Family Matters: Rankings Within Fund Families and Fund Inflows

Kempf

Ruenzi

2007

Business Fin & Account

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This paper examines the influence of the position of a fund within its family on its subsequent net-inflows. Our empirical study of the US equity mutual fund market shows that reaching a top position within the family leads to large inflows. These inflows accrue beyond those expected, given the performance of the fund in its respective market segment. The effect is much stronger in large families than in small families. We also find that inflows significantly increase if a fund moves into the top positions within its family from one year to another. These results lead to competition within the fund family and to important risk taking incentives for fund managers. Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

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Section: Modelmentioning

confidence: 99%

Family Matters: Rankings Within Fund Families and Fund Inflows

Kempf

Ruenzi

2007

Business Fin & Account

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“…What mechanisms are available to ensure that an actively managed fund once selected continues to maintain its performance? Harless and Peterson (1998) find that poor performance by US mutual funds can persist for sustained periods. Trustees may be loath to displace funds managers because this reflects unfavourably on their initial choice.…”

Section: Principal and Agent Relations In Superannuation Fundsmentioning

confidence: 91%

Principal and Agent Problems in Superannuation Funds

Drew

Stanford

2003

Australian Economic Review

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“…Behavioral explanations tend to focus on the losses incurred by unsophisticated investors who make sub-optimal use of information and persist with poorly performing funds that charge them relatively high fees (Harless and Peterson [1998], Christoffersen and Musto [2002], Hortaçsu and Syverson [2004], Barber et al [2005], Ruiz Verd u [2008, 2009], Boldin andCici [2010], Choi et al [2010], Ianotta and Navone [2011]). A theme is that such investors are heavily influenced by marketing, adviser recommendations, and other salient information; and that these aspects are exploited by funds through charging higher fees.…”

Section: Introductionmentioning

confidence: 99%

“…However, our model as applied in the fifth section does not explain why active management persists to the extent it does, given that a majority of investors have been losing money using active management (see Fama and French [2010]). In addition, under the model, certain funds should not exist; such as large funds that likely exceed their capacity thresholds, and managers that survive notwithstanding persistently poor performance (see Harless and Peterson [1998]). We contend that behavioral influences may be contributing to these aspects in two ways.…”

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confidence: 99%

Why Might Investors Choose Active Management?

Foster

Warren

2015

Journal of Behavioral Finance

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We investigate why investors may be willing to participate in active management, not withstanding expectations for negative average alpha after fees across all managers. Our approach involves modeling the expected outcome from investing in a portfolio of active managers, for investors who believe they have ability to select good managers and may anticipate benefits from replacing managers when alpha expectations fall. Numerical calibrations using inputs consistent with the literature find that certain investors can credibly invest through active managers at observed fee levels, most notably institutions. However, participation in active management at fees paid by some retail investors can only be explained by allowing for behavioral biases. Our analysis suggests that the wide use of active management reflects a diversity of investors who form expectations based on information other than expected alpha for the average manager, some of which entails cognitive error.

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Investor behavior and the persistence of poorly-performing mutual funds

Cited by 64 publications

References 25 publications

Family Matters: Rankings Within Fund Families and Fund Inflows

Family Matters: Rankings Within Fund Families and Fund Inflows

Principal and Agent Problems in Superannuation Funds

Why Might Investors Choose Active Management?

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