Investor Attention and Investor Characteristics

The abundant empirical evidence on the persistence of mutual fund underperformance raises the question of who buys those funds that are expected to underperform. Although this question has attracted the interest of researchers, extant studies are limited to a few small markets or to a subset of the US market and specific sample periods. In order to study the behavior of investors in the universe of US mutual funds, we use the sociodemographic characteristics of visitors to mutual fund websites to proxy for investor characteristics. We find that differences in sociodemographic characteristics are systematically associated with predicted fund performance in the US market: Funds with a higher fraction of female, older or low-income investors are associated with worse predicted performance. We also find that differences in the optimality of investor choices across investor sociodemographic groups can be explained by differences in sensitivity to past performance and fund fees. Finally, there is limited evidence that fund marketing can explain why some groups of investors buy the underperforming funds. Although some of our findings confirm those of previous studies, others are in clear contradiction, which further supports the need to explore new data sets.