Loss-Averse Preferences, Performance, and Career Success of Institutional Investors

Using survey-based measures of mutual fund manager loss aversion, we study the effects of institutional investor preferences on their investment decisions, performance, and career outcomes. We find that managers with higher aversion to losses choose portfolios with lower downside risk, increase their risk-taking more in response to poor past performance, and display a stronger disposition effect. Further, we provide evidence that managers who are more loss-averse have lower performance and are more likely to have their contracts terminated.