A Discriminant Analysis of Return Preferences of Individual Investors in a Dual-Purpose Mutual Fund

This study examines stated return preferences of individual investors. First, evidence suggests investors sort themselves into groups by return preferences. Identifiable, systematic, and statistically significant differences exist across investor groups.There appear to be at least two investor preference groups with close correspondence irrespective of dual-fund share classes and investors in the two dual-fund share classes.Second, differences in investor return preferences do matter. Investors appear to act on their stated return preferences. Investors with preferences for dividends tend to buy equity securities focusing on dividends, and also buy fixed-income securities. Those with preferences for capital gains tend to buy low-yield securities. Discriminant analysis of share-class investors reveals systematic and significant differences with respect to (1) risk-return expectations, (2) investment attitudes and expectations, (3) financial analysis variables, and (4) portfolio structure variables