Abstract
This study provides in-depth coverage of important findings surrounding the question of why investors continue to buy underperforming actively managed mutual funds. This issue is complicated by the finding active managers have skill that allows them to add fund value, but which is not shared with investors who continue to earn negative alphas. So why do investors persist in earning below market returns? Four possible answers are discussed: (1) investor overconfidence; (2) fund strategic repricing decisions; (3) fund sentiment contrarian behavior; and (4) investor dependence on brokers with agency conflicted broker incentives.
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