Bargain Hunting or Star Gazing? Investors’ Preferences for Stock Mutual Funds*

Abstract

Investors who wish to purchase shares in mutual funds balance many types of information, from a variety of sources, when making their fund selection. This research examines how investors choose a mutual fund within a given class of funds. Among the major findings are that investors pay a great deal of attention to past performance and vastly overweight loads relative to expense ratios when evaluating a fund’s overall fee structure. I also find that investors with a greater knowledge of basic finance are less likely, not more likely, to make reasonable fund choices.

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