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

Author

Listed:
  • Jin, Xuejun
  • Li, Hongze
  • Yu, Bin
  • Zheng, Yijing

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.

Suggested Citation

  • Jin, Xuejun & Li, Hongze & Yu, Bin & Zheng, Yijing, 2023. "How does the COVID-19 pandemic change the disposition effect in fund investors?," Pacific-Basin Finance Journal, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:pacfin:v:81:y:2023:i:c:s0927538x23001907
    DOI: 10.1016/j.pacfin.2023.102119
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    More about this item

    Keywords

    Deposition effect; Mutual funds; Pandemic; Prospect theory; Credit consumption;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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