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Throwing Good Money After Bad? The Impact of the Escalation of Commitment of Mutual Fund Managers on Fund Performance

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  • Yu-En Lin
  • Whei-May Fan
  • Hsiang-Hsuan Chih

Abstract

Numerous prior studies refer to the potential existence of irrational investment behavior among mutual fund managers, such as disposition effect. However, the focus in such studies has been placed on the irrationality of their selling decisions, although similar problems may be inherent in their buying decisions. This study presents evidence that if mutual fund managers do display a tendency to escalate their commitment to losing stocks, there will be negative impacts on the performance of the funds. Managers continue to buy losers not because they judged to choose rationally but rather because of irrational escalation of commitment.

Suggested Citation

  • Yu-En Lin & Whei-May Fan & Hsiang-Hsuan Chih, 2014. "Throwing Good Money After Bad? The Impact of the Escalation of Commitment of Mutual Fund Managers on Fund Performance," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 15(1), pages 1-15, January.
    • Handle: RePEc:taf:hbhfxx:v:15:y:2014:i:1:p:1-15
    DOI: 10.1080/15427560.2013.849706
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    Cited by:

    1. Eric Shaunn Mattingly & Trayan N. Kushev & Manju K. Ahuja & Dalong Ma, 2016. "Switch or persevere? The effects of experience and metacognition on persistence decisions," International Entrepreneurship and Management Journal, Springer, vol. 12(4), pages 1233-1263, December.
    2. Leković Milјan, 2020. "Cognitive Biases as an Integral Part of Behavioral Finance," Economic Themes, Sciendo, vol. 58(1), pages 75-96, March.
    3. Rabeea Sadaf & Aqeel Younis, 2017. "Investor Psychology And Decision Making; Based On Overconfidence And Self Attribution Bias: Evidence From Islamabad Stock Exchange (Ise)," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 497-505, July.

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