Ch.12 · Model Portfolios and Asset Allocation · hard
What is 'recency bias' in the context of mutual fund investor behaviour?
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EXPLANATION
Recency bias causes investors to extrapolate recent performance into the future — rushing into funds that performed well in the last 1-2 years and exiting those that underperformed recently. This leads to buying high and selling low — the opposite of sound investing. Distributors must educate investors on this bias.
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