Essays in Behavioral Finance

Item Type Thesis (Doctoral)
Abstract When it comes to investing, humans not always behave as rational as one might think. My work tackles questions related to seemingly irrational investment behavior by using the active fund management industry as a quasi-laboratory. To answer these questions, I have collected an extensive fund and fund manager dataset. This dissertation contains three studies. In the paper 'In Military We Trust: The Effect of Managers Military Background on Mutual Fund Flows', we take a mutual fund investor's point of view. We address the question why investors continue to pay such high fees to fund managers and advisers, although actively managed funds have long been shown to underperform passive investments. The paper reveals that trust-building characteristics of fund managers affect purchase decisions of mutual fund investors. We exploit variation in fund managers prior affiliations with the U.S. military, a well-trusted institution, and relate it to fund flows. We find that funds with ex-military managers have significantly higher flows relative to other funds. Additionally, we show that investor inclination toward ex-military managers strengthens with managers' military involvement and its salience and with nationwide confidence in the military. The second paper, 'Back to the Roots: Ancestral Origin and Mutual Fund Manager Portfolio Choice', aims to understand how ancestry impacts investment decisions. The paper focuses on ancestry-induced biases that fund managers exhibit in their portfolios. We exploit variation in the ancestries of U.S. mutual fund managers and find that, compared with their peers, managers overweight stocks from their ancestral home countries. Similarly, they overweight industries that are comparatively large in their ancestral home countries. These effects are more pronounced for managers whose connection to the home country is more recent. Managers who overweight their ancestral home countries or industries do not exhibit superior performance for these holdings, which supports a familiarity bias, rather than informational advantage, based on ancestral ties. Lastly, the third paper entitled 'Jumping on the ESG Bandwagon: The Effect of ESG-Related Fund Name Changes on Fund Flows' examines whether fund firms take advantage of the environmental, social, and governance (ESG) topic to market their funds. I analyze the recent phenomenon that fund firms rebrand their conventional funds toward ESG or 'sustainable investing'. I find that funds earn abnormal flows after they rename to include ESG buzzwords in their name. ESG score improvements in their portfolios suggest that, on average, rebranded funds deliver on their new label's promise. However, I show that retail investors direct abnormal flows to rebranded funds irrespective of ESG score improvements. This indicates that retail investors rely on a fund's name when assessing its ESG-orientation and may thus be susceptible to greenwashing.
Authors Cochardt, Alexander Elmar
Referent Ammann, Manuel (Prof. Dr.) (Referent) & Schmid, Markus (Prof. Dr.) (Koreferent)
Language English
Keywords Anlageverhalten; Investmentfonds; Fonds; Investmentgesellschaft; Vertrauen; Militär; Abstammung; Bias; Nachhaltigkeit; Greenwashing; EDIS-5169; home bias; fund flows; fund managers; behavioral finance; mutual funds; rebranding; ESG; investment decisions; ancestry; military; investors; trust
Subjects economics
HSG Classification not classified
HSG Profile Area None
Date 21 February 2022
Publisher Universität St. Gallen
Place of Publication St.Gallen
Official URL
Depositing User Ruedi Lindegger
Date Deposited 22 Feb 2022 11:30
Last Modified 07 Nov 2022 14:56


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Cochardt, Alexander Elmar: Essays in Behavioral Finance. Thesis, 2022.

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