Ch.10 · Benchmarks and Performance Evaluation · medium
What is 'recency bias' as a behavioural bias in mutual fund investing?
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EXPLANATION
Recency bias causes investors to extrapolate recent performance into the future — buying top performers after a rally (often at peak valuations) and avoiding or redeeming from underperformers (often at the trough). This 'buy high, sell low' pattern destroys returns. Historical data shows that last year's best performing category often underperforms in the following year.
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