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Disposition effect in fund managers. Fund and stock-specific factors and the upshot for investors

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  • Andreu, Laura
  • Ortiz, Cristina
  • Sarto, José Luis

Abstract

This paper evaluates the presence of disposition effect in Spanish equity funds and its implications for investors. We find that disposition spread is not a widespread bias, but it exists across funds. This effect is especially intense during the crisis period, but it is mitigated in large management companies or in those that belong to bank holding groups. For a new insight when disentangling managers’ decisions, this study shows that the disposition effect is not only a cognitive bias inherent to the person, but it mostly depends on the type of transactions. Partial sales, domestic stocks, stocks with low portfolio weights, and stocks with lower past returns are disposition-prone. The existence of disposition effect is confirmed; however, investors are not harmed in terms of fund performance.

Suggested Citation

  • Andreu, Laura & Ortiz, Cristina & Sarto, José Luis, 2020. "Disposition effect in fund managers. Fund and stock-specific factors and the upshot for investors," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 253-268.
    • Handle: RePEc:eee:jeborg:v:176:y:2020:i:c:p:253-268
    DOI: 10.1016/j.jebo.2020.04.002
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    References listed on IDEAS

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    3. Wang, Wenzhao & Duxbury, Darren, 2021. "Institutional investor sentiment and the mean-variance relationship: Global evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 415-441.
    4. Jin, Xuejun & Li, Hongze & Yu, Bin & Zheng, Yijing, 2023. "How does the COVID-19 pandemic change the disposition effect in fund investors?," Pacific-Basin Finance Journal, Elsevier, vol. 81(C).
    5. Beatrice Boumda & Darren Duxbury & Cristina Ortiz & Luis Vicente, 2021. "Do Socially Responsible Investment Funds Sell Losses and Ride Gains? The Disposition Effect in SRI Funds," Sustainability, MDPI, vol. 13(15), pages 1-14, July.

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    More about this item

    Keywords

    Disposition effect; Mutual funds; Crisis period; Management company; Partial sales; Stock industry;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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