How does the COVID-19 pandemic change the disposition effect in fund investors?

Xuejun Jin, Hongze Li, Bin Yu and Yijing Zheng

Pacific-Basin Finance Journal, 2023, vol. 81, issue C

Abstract: This study investigates the influence of COVID-19 pandemic on the disposition effect of mutual fund investors in China. Utilizing account data from the Ant Group spanning January 2019 to April 2022, we find evidence of disposition-prone behavior across the entire sample and various investor groups. Moreover, our analysis suggests that pandemic can attenuate the manifestation of the disposition effect. We propose three potential drivers for the observed decrease in behavioral bias: i) heightened risk aversion leading to a tendency to realise losses more than gains, driven by fear of a worsening situation; ii) forced sales due to cash shortages triggered by the pandemic; and iii) reduced self-image damage associated with selling at a loss when peer performance is relatively stronger. These findings shed light on the complex interplay between investor behavior and external shocks during pandemic periods.

Keywords: Deposition effect; Mutual funds; Pandemic; Prospect theory; Credit consumption (search for similar items in EconPapers)
JEL-codes: D81 G11 G12 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:81:y:2023:i:c:s0927538x23001907

DOI: 10.1016/j.pacfin.2023.102119

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