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

Yu-En Lin, Whei-May Fan and Hsiang-Hsuan Chih

Journal of Behavioral Finance, 2014, vol. 15, issue 1, 1-15

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.

Date: 2014
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DOI: 10.1080/15427560.2013.849706

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