Attention, Lottery, or Salience? The Impact of Extreme Payoffs on Chinese Mutual Fund Flows

• DOI: 10.2139/ssrn.3726918
• Publication Date: 2021-01-15T03:03:55Z
• Authors: Shiyang Hu; Cheng Xiang; Xiaofeng Quan
• Keywords: Lottery; Mutual fund; Salience (neuroscience)

Using a sample of Chinese mutual funds from 2004 to 2019, we find that investors direct flows into (out of) with salient upsides (downsides), controlling for set known determinants fund flows. This effect is robust alternative measures key variables and more pronounced larger individual ownership. not explained by individuals’ attention-driven purchases attention-grabbing funds, funds’ lottery-like features, or the characteristics underlying stocks. The salience theory, which argues extreme payoffs distort decision weights on risky asset choices only if these stand out relative available alternatives thus are salient, offers plausible explanation this effect.