Reference-dependent return chasing: Alpha, gains and fund flows

Brunner, Fabian

URL:	https://www.dgf2019.wiwi.uni-due.de/fileadmin/file...
Document Type:	Conference or workshop publication
Year of publication:	2019
Book title:	26th Annual Meeting of the German Finance Association (DGF) : University of Duisburg-Essen, September 27 - 28, 2019 : Conference booklet
Page range:	81
Conference title:	26th Annual Meeting of the German Finance Association (DGF)
Location of the conference venue:	Essen, Germany
Date of the conference:	27.-28.09.2019
Place of publication:	Trier
Publishing house:	DGF Deutsche Gesellschaft für Finanzwirtschaft e.V.
Publication language:	English
Institution:	Business School > Internat. Finanzierung (Ruenzi 2009-)
Subject:	330 Economics
Abstract:	How mutual fund investors chase alpha (abnormal performance) with their money is strongly mediated by the nominal price gain or loss that they hold the fund at. For high alpha funds, the investment response to alpha is reduced by as much as 37% if the fund is held at a loss as opposed to a gain considering the average dollar invested. This distinct interaction of alpha and losses attenuates the performance-flow relation and eliminates convexity for high alpha but loss funds. The empirical evidence supports ambiguity aversion and the social transmission of investment opportunities as mechanisms.