Professional Investors, Psychology and Performance

Studies of investor psychology are increasingly gaining significance in the finance and investment literature. This research aims to investigate, on the one hand, to what extent fund managers are prone to overconfidence and associated behavioral biases such as self-serving attribution. On the other hand, the research explores the extent to which overconfidence, and specifically overoptimism, may have an impact on a mutual fund's investment performance. The fundamental question is why, how, and through which mechanisms may overconfidence affect investment decisions. The research findings presented in this book suggest that excessive overconfidence is associated, on average, with diminished future investment returns. More precisely, the actual relation between fund manager overconfidence and subsequent investment performance is non-linear and in the form of an inverted-U. This finding, among other results discussed, can have important implications for the fund management industry. This book is, therefore, of interest to both finance academics and practitioners as well as general readers interested in the psychology of investments.