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Reversal of divergent decisions: Wise or hasty decisions?

Author

Listed:
  • Andreu, Laura
  • Gimeno, Ruth
  • Sarto, José Luis
  • Serrano, Miguel

Abstract

We examine whether the reversals of buying decisions by fund managers depend on the performance of the stocks; or do they depend on the divergence in the trading decisions of peer managers. Through separate analyses, we find that stock performance positively influences the reversal of trading decisions while the level of divergence has a negative effect. However, when we analyse the joint effect of performance and divergence, we find a more rapid reversal in more divergent decisions that lead to good results. This asymmetric evidence might be linked to the disposition effect and could entail the loss of potential good outcomes. The results indicate that managers who reverse their buying decisions take greater advantage of the potential performance, providing evidence of skill in their selling decisions. Finally, we observe that team structures mitigate the preference of managers to hold on to their special bets.

Suggested Citation

  • Andreu, Laura & Gimeno, Ruth & Sarto, José Luis & Serrano, Miguel, 2025. "Reversal of divergent decisions: Wise or hasty decisions?," Research in International Business and Finance, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:riibaf:v:76:y:2025:i:c:s0275531925000583
    DOI: 10.1016/j.ribaf.2025.102802
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    More about this item

    Keywords

    Disposition effect; Mutual funds; Performance consequences; Reversal decisions; Trading divergence;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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