Aversion to losses is strongest in Asia and less so in Germany, Sweden, Netherlands and Switzerland, a study into mutual fund inflows and outflows shows.
Only in a few countries, such as Luxembourg and Ireland, do peculiarities such as fund-favorable regulations play a role in mutual fund flows. In all other countries, fund flows can be traced to aspects of behavioural finance.
The study of fund flows in 35 countries was carried out for Deutsche Asset & Wealth Management Global Financial Institute by Professor Thorsten Hens from the University of Zurich, who is regarded as one of the world’s leading scientists in the field of behavioural finance.
The paper finds one of the best-known behavioural finance patterns is loss aversion. Price losses of 10% lead to much stronger emotions than profits of 10%.
Inflows and outflows from investment funds fluctuate much more in countries where investors demonstrate a tendency to be wary of losses. Countries with a distinct loss aversion are mainly in Asia, such as in Hong Kong, Thailand or South Korea.


German investors, by contrast, follow a different behavioural pattern described in the paper as “Patience”. This means that investors in Germany, and also in Sweden, Netherlands and Switzerland, will wait much longer before altering their behaviour.
In all countries studied, the financial crisis clearly had an impact on investor psychology after 2007. Since then, investors have purchased fewer units in response to price increases in their home markets.

The report is called Behavioural Finance and Mutual Fund Flows; An International Study.
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