{"id":{"repo_id":"auckland-tech","oai_identifier":"oai:openrepository.aut.ac.nz:10292/20508"},"canonical_url":"https://search.dev.ndltd.org/etd/auckland-tech/oai:openrepository.aut.ac.nz:10292/20508","repository":{"repo_id":"auckland-tech","name":"AUT University","base_url":"https://openrepository.aut.ac.nz/server/oai/request"},"display":{"title":"Prospect Theory and Fund Flows under Uncertainty","abstract":"We study whether macroeconomic uncertainty attenuates investors’ behavioural demand for mutual funds. This study employs a comprehensive dataset of U.S. equity mutual funds covering the period from 1995 to 2021. Using monthly panel regressions that incorporate fund-specific fixed effects and double-clustered standard errors at both the fund and time levels, we examine how future fund flows respond to a Cumulative Prospect Theory (CPT) score. The CPT measure is derived from the complete distribution of each fund’s returns over the preceding twelve months. A one-standard-deviation increase in CPT predicts higher inflows, but this CPT–flow sensitivity weakens meaningfully when Economic Policy Uncertainty (EPU) rises (about a 15% attenuation in our baseline), even after controlling for risk-adjusted performance and factor exposures. The dampening is strongest for younger, smaller, high idiosyncratic-volatility, and high downside-risk funds, and for active and local funds. Replacing EPU with alternative uncertainty proxies reveals distinct mechanisms: looser global financial conditions (higher GFC) amplify CPT- and return-driven flows; a tighter shadow rate lowers average flows yet increases selectivity toward CPT-aligned funds; and quantitative easing boosts baseline flows while eroding the marginal CPT premium. Results are robust when using abnormal returns and when focusing on “high” CPT/return funds (above the monthly median), for which premia are economically larger but similarly state-dependent. These findings integrate behavioural portfolio choice with macro-uncertainty channels and map when performance-chasing is most fragile.","abstract_html":"We study whether macroeconomic uncertainty attenuates investors’ behavioural demand for mutual funds. This study employs a comprehensive dataset of U.S. equity mutual funds covering the period from 1995 to 2021. Using monthly panel regressions that incorporate fund-specific fixed effects and double-clustered standard errors at both the fund and time levels, we examine how future fund flows respond to a Cumulative Prospect Theory (CPT) score. The CPT measure is derived from the complete distribution of each fund’s returns over the preceding twelve months. A one-standard-deviation increase in CPT predicts higher inflows, but this CPT–flow sensitivity weakens meaningfully when Economic Policy Uncertainty (EPU) rises (about a 15% attenuation in our baseline), even after controlling for risk-adjusted performance and factor exposures. The dampening is strongest for younger, smaller, high idiosyncratic-volatility, and high downside-risk funds, and for active and local funds. Replacing EPU with alternative uncertainty proxies reveals distinct mechanisms: looser global financial conditions (higher GFC) amplify CPT- and return-driven flows; a tighter shadow rate lowers average flows yet increases selectivity toward CPT-aligned funds; and quantitative easing boosts baseline flows while eroding the marginal CPT premium. Results are robust when using abnormal returns and when focusing on “high” CPT/return funds (above the monthly median), for which premia are economically larger but similarly state-dependent. These findings integrate behavioural portfolio choice with macro-uncertainty channels and map when performance-chasing is most fragile.","abstract_has_math":false,"creators":["Manjardekar, Yash Ashish"],"institution":null,"degree_name":null,"degree_level":null,"degree_discipline":null,"degree_department":null,"school":null,"contributors":[],"advisors":[],"committee_chairs":[],"committee_members":[],"year":2025,"date_issued":"2025","date_published":"2025","updated_at":"2026-07-27T18:45:47Z","subjects":[],"languages":[],"rights":[],"rights_urls":[],"identifier_entries":[{"key":"dc:identifier","label":"Identifier","values":["hdl:10292/20508"],"render_values":[{"text":"hdl:10292/20508","href":null,"code":true}]}]},"links":{"outbound_url":null,"outbound_label":null,"outbound_source":null},"metadata_groups":[{"id":"academic_context","label":"Academic Context","entries":[{"key":"dc:date.issued","label":"Date","values":["2025"]},{"key":"dc:type","label":"Dc Type","values":["Dissertation"]}]},{"id":"identifiers","label":"Identifiers","entries":[{"key":"dc:identifier","label":"Identifier","values":["hdl:10292/20508"]}]},{"id":"additional","label":"Additional Metadata","entries":[{"key":"dc:description.other","label":"Dc Description Other","values":["We study whether macroeconomic uncertainty attenuates investors’ behavioural demand for mutual funds. This study employs a comprehensive dataset of U.S. equity mutual funds covering the period from 1995 to 2021. Using monthly panel regressions that incorporate fund-specific fixed effects and double-clustered standard errors at both the fund and time levels, we examine how future fund flows respond to a Cumulative Prospect Theory (CPT) score. The CPT measure is derived from the complete distribution of each fund’s returns over the preceding twelve months. A one-standard-deviation increase in CPT predicts higher inflows, but this CPT–flow sensitivity weakens meaningfully when Economic Policy Uncertainty (EPU) rises (about a 15% attenuation in our baseline), even after controlling for risk-adjusted performance and factor exposures. The dampening is strongest for younger, smaller, high idiosyncratic-volatility, and high downside-risk funds, and for active and local funds. Replacing EPU with alternative uncertainty proxies reveals distinct mechanisms: looser global financial conditions (higher GFC) amplify CPT- and return-driven flows; a tighter shadow rate lowers average flows yet increases selectivity toward CPT-aligned funds; and quantitative easing boosts baseline flows while eroding the marginal CPT premium. Results are robust when using abnormal returns and when focusing on “high” CPT/return funds (above the monthly median), for which premia are economically larger but similarly state-dependent. These findings integrate behavioural portfolio choice with macro-uncertainty channels and map when performance-chasing is most fragile."]},{"key":"dc:title","label":"Title","values":["Prospect Theory and Fund Flows under Uncertainty"]}]}],"canonical_facts":{"dc:date.issued":["2025"],"dc:description.other":["We study whether macroeconomic uncertainty attenuates investors’ behavioural demand for mutual funds. This study employs a comprehensive dataset of U.S. equity mutual funds covering the period from 1995 to 2021. Using monthly panel regressions that incorporate fund-specific fixed effects and double-clustered standard errors at both the fund and time levels, we examine how future fund flows respond to a Cumulative Prospect Theory (CPT) score. The CPT measure is derived from the complete distribution of each fund’s returns over the preceding twelve months. A one-standard-deviation increase in CPT predicts higher inflows, but this CPT–flow sensitivity weakens meaningfully when Economic Policy Uncertainty (EPU) rises (about a 15% attenuation in our baseline), even after controlling for risk-adjusted performance and factor exposures. The dampening is strongest for younger, smaller, high idiosyncratic-volatility, and high downside-risk funds, and for active and local funds. Replacing EPU with alternative uncertainty proxies reveals distinct mechanisms: looser global financial conditions (higher GFC) amplify CPT- and return-driven flows; a tighter shadow rate lowers average flows yet increases selectivity toward CPT-aligned funds; and quantitative easing boosts baseline flows while eroding the marginal CPT premium. Results are robust when using abnormal returns and when focusing on “high” CPT/return funds (above the monthly median), for which premia are economically larger but similarly state-dependent. These findings integrate behavioural portfolio choice with macro-uncertainty channels and map when performance-chasing is most fragile."],"dc:identifier":["hdl:10292/20508"],"dc:title":["Prospect Theory and Fund Flows under Uncertainty"],"dc:type":["Dissertation"]},"updated_at":"2026-07-27T18:45:47Z"}