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The Disposition Effect, Escalation Of Commitment And Herding Behavior Of Mutual Fund Managers

Author

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  • YU-EN LIN

    (Business School, Jilin University, 2699 Qian Jin Street, Changchun 130012, P. R. China)

  • HSIANG-HSUAN CHIH

    (Department of Finance, National Dong Hwa University, Taiwan)

  • TAI-HSUN HUANG

    (Department of Banking and Finance, Tamkang University, Taiwan)

  • CHIA-HSIEN TANG

    (Department of Banking and Finance, Tamkang University, Taiwan)

Abstract

This paper investigates the relationship between deposition effect and escalation of commitment and herding behavior. First, this paper ranks the mutual fund into five groups by herding style, and we examine deposition spread (DISP) and escalation of commitment dispread (ESCA) zero investment portfolios in each herding style portfolio. Then, we investigate whether the paper gain ratio or paper loss ratio impacts on herding behavior after controlling other characteristics. Our results can be summarized as follow: First, deposition effect and escalation of commitment has negative impact on mutual fund performance. Second, in buy herding style fund, the deposition effect and escalation of commitment has the most negative impact on performance, however, in sell herding style fund, the negative effect disappears. Finally, we find the deposition effect indeed impacts the herding behavior.

Suggested Citation

  • Yu-En Lin & Hsiang-Hsuan Chih & Tai-Hsun Huang & Chia-Hsien Tang, 2015. "The Disposition Effect, Escalation Of Commitment And Herding Behavior Of Mutual Fund Managers," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 1-23.
    • Handle: RePEc:wsi:afexxx:v:10:y:2015:i:01:n:s2010495215500037
    DOI: 10.1142/S2010495215500037
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    Cited by:

    1. Gutiérrez-Nieto, Begoña & Ortiz, Cristina & Vicente, Luis, 2023. "A bibliometric analysis of the disposition effect: Origins and future research avenues," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).

    More about this item

    Keywords

    Disposition effect; escalation of commitment; herding behavior; holdings preference; behavior bias; G11; G23;
    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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