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

Brunner, Fabian

Document Type: Conference presentation
Year of publication: 2019
Conference title: 1st Conference on Behavioral Research in Finance, Gonvernance, and Accounting (BFGA 2019)
Location of the conference venue: Ebsdorfergrund, Germany
Date of the conference: 07.-08.10.2019
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.

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