Disposition effect and mutual fund performance

Manuel Ammann, Alexander Ising and Stephan Kessler

Applied Financial Economics, 2012, vol. 22, issue 1, 1-19

Abstract: This article finds strong evidence for the presence of the disposition effect among US mutual fund managers. The analysis can establish a link between the disposition effect and mutual fund characteristics as well as changes in the macroeconomic environment. Managers with a lower disposition effect are found to invest in larger equities with a higher trade volume, a higher past performance, lower idiosyncratic risk, and a higher risk-adjusted performance. However, fund characteristics and the economic environment can only explain a limited amount of the variation in the disposition effect across mutual funds. Using a new methodology to reduce the disposition effect exhibited by mutual fund investments, we find no increase in their profitability. Although statistically significant, the disposition effect has only a minor economic effect on fund performance.

Date: 2012
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DOI: 10.1080/09603107.2011.595676

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