Mutual Funds Win and Investors Lose

Haslem, John A.

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Mutual Funds Win and Investors Lose

Journal of Index Investing, Vol.3, No. 4, pp. 31-40, Spring 2013

https://doi.org/10.3905/jii.2013.3.4.031

Posted: 21 May 2019

See all articles by John A. Haslem

John A. Haslem

University of Maryland - Robert H. Smith School of Business; University of Maryland - Robert H. Smith School of Business

There are 2 versions of this paper

Date Written: February 25, 2013

Abstract

This study provides in-depth coverage of important findings surrounding the question of why investors continue to buy underperforming actively managed mutual funds. This issue is complicated by the finding that active managers have skill that allows them to add fund value, but that is not shared with investors, who continue to earn negative alphas. So why do investors persist in earning below market returns? Four possible answers are discussed: 1) investor overconfidence; 2) strategic fund repricing decisions; 3) fund “sentiment contrarian behavior;” and 4) investor dependence on brokers with agency conflicted incentives.

Keywords: mutual funds, underperforming funds, actively managed, negative alphas, investor overconfidence

JEL Classification: G2, G23, G28

Suggested Citation: Suggested Citation

Haslem, John A. and Haslem, John A., Mutual Funds Win and Investors Lose (February 25, 2013). Journal of Index Investing, Vol.3, No. 4, pp. 31-40, Spring 2013 , https://doi.org/10.3905/jii.2013.3.4.031, Available at SSRN: https://ssrn.com/abstract=2224131