Behavioral Finance: Are the Disciples Profiting from the Doctrine?

Abstract

We analyze 16 mutual funds that are self-proclaimed or media-identified disciples of behavioral finance to determine whether 1) they successfully attract investment dollars and 2) their strategies earn abnormal returns for their investors. We find these funds are successfully attracting investment dollars, outperform S&P 500 index funds, load especially heavily on Fama and French’s HML factor, but fail to earn risk-adjusted abnormal returns. Our results suggest using behavioral finance in a mutual fund’s investing strategy may be of more benefit as a marketing tool than as a means of earning abnormal returns.