- Essays on investor behavior in mutual fund investments (2011)
- In total, this dissertation comprises three research papers. Objective of all of these papers are to detect mistakes of private investors when conducting mutual funds investments and to analyze the implications. Moreover, the question is addressed whether financial advisors help private investors to avoid these investment mistakes. All three research papers use the same data base which has been provided by a German online brokerage house. The detailed data set allows contributing to existing literature on mutual fund investments, smart decision making, household finance as well as financial advice on an investor- and transaction-specific level. The first paper addresses the question which particular decision criteria private investors use when purchasing mutual funds. It can be shown that funds volume is the dominating decision criterion, whereas historical performance is only of minor importance. As performance persistence exists in the underlying data set, it can be concluded that the majority of investors make investment mistakes. In the second paper it is shown that smart investors, i.e. investors who purchase mutual funds by chasing historical performance, are older, wealthier, more experienced and less likely to be overconfident. In addition, it can be verified that there exists a positive impact of the ability to select mutual funds by chasing historical performance on the overall investment success. Hence, the quality of mutual fund selection ability is an ex-ante measure for investment success. Finally, the third paper analyzes the influence of financial advice on mutual fund decision making of private investments. Evidence can be provided that financial advisors do not help their customers to purchase mutual funds by chasing historical performance. In fact, advisors recommend high-volume mutual funds from well-known fund families. Apparently, financial advisors are much more salesmen than real advisors. These results hold when controlling for potential endogeneity issues.