Mutual Funds Win and Investors Lose

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