Using data from surveys as well as as real transactions we analyze which and why investors choose funds with performance fees even though these funds may be more expensive. According to agency theory, performance fees could incentivize managers to achieve better returns, but they could also...

Return-chasing investors almost exclusively consider top-performing funds for their investment decisions. When drawing conclusions about the managerial skill of these top performers, they tend to neglect fund volatility and the cross-sectional information contained in the number of funds and the...

Previous research indicates that a lack of financial sophistication might explain the past strong growth in active management. We construct an objective financial literacy score and analyze the relation between financial literacy and mutual fund investment behavior. We show that there is a...

A recent theory by Gennaioli, Shleifer, and Vishny (2015) proposes that trust is an important component for delegated investing. This paper tests the theory in a laboratory experiment. Participants first play a trust game. Participants then act as investors who have to make two separate,...

We test the abilities of the Stiftung Warentest fund rating system to predict future fund performance among German registered funds for six equity categories: Germany, Euro-Zone, Europe, North-America, Pacific, and World. Stiftung Warentest is a consumer protection agency and a major provider...

We study the effect of information aggregation on individual investors' risk-taking behavior in two experiments, each having three different treatments. Subjects in the control group were given hypothetical returns for both the risk-free and the risky asset. Subjects in the account group were...

To understand how real investors use their beliefs and preferences in investing decisions, we examine a panel survey of self-directed online investors at a UK bank. The survey asks for return expectations, risk expectations, and risk tolerance of these investors in three-month intervals between...

According to the behavioral concept of myopic loss aversion (MLA), investors are more willing to take risks if they are less frequently informed about their portfolio performance. This prediction of MLA has been confirmed in various experimental studies and the conclusion has been drawn that...