Prospect Theory and the Performance of Mutual Fund

• Main Authors: Chung-Hung Chang, 張淙浤
• Other Authors: none
• Format: Others
• Language: zh-TW
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/16862893799214136693

碩士 === 國立中央大學 === 財務金融學系碩士在職專班 === 94 === According to asset-pricing theories, there is a positive risk-return trade-off relationship. However, Bowman (1980) documents a negative, instead of a positive, relationship between risk and return based on accounting data of firms from 85 U.S. industries. Several studies have shown that the risk-return paradox can be explained based on Kahneman and Tversky (1979) prospect theory. Prospect theory argues that individuals use target or reference points in evaluating risky choices. In this article, to conform to the spirit of the prospect theory, I examine whether the risk-return relationship exists in Taiwan mutual fund market by running regressions for below and above the target level based on the median of average monthly returns. I found that the prospect theory is not as strong as the traditional literature bas shown.