THE DISPOSITION EFFECT AMONG MUTUAL FUND PARTICIPANTS: A RE-EXAMINATION

Paulo Silva, Victor Mendes and Margarida Abreu

No 2020/0126, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: Using information on mutual fund trades executed from 1998 to 2017 by 31,513 individual investor clients of a major Portuguese financial institution, we study the relationship between the disposition effect, financial literacy and trading experience. We find that mutual fund investors exhibit strong disposition effect. The tendency to hold losers is partially offset with literacy: not only holding a university degree reduces the propensity to hold on to loser funds but also higher financial knowledge and stronger math skills reduce the disposition effect. Literacy also plays a role in shaping the way experience affects this bias. Evidence of the disposition effect persists after accounting for redemption fees, bad emotions, irrational beliefs, market sentiment and the existence of someone to blame.

Keywords: disposition effect; mutual funds; financial literacy (search for similar items in EconPapers)
JEL-codes: G11 G41 G53 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-fle and nep-gen
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Related works:
Journal Article: The disposition effect among mutual fund participants: a re-examination (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp01262020

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