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Disposition effect and mutual fund performance

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  • Manuel Ammann
  • Alexander Ising
  • Stephan Kessler

Abstract

This article finds strong evidence for the presence of the disposition effect among US mutual fund managers. The analysis can establish a link between the disposition effect and mutual fund characteristics as well as changes in the macroeconomic environment. Managers with a lower disposition effect are found to invest in larger equities with a higher trade volume, a higher past performance, lower idiosyncratic risk, and a higher risk-adjusted performance. However, fund characteristics and the economic environment can only explain a limited amount of the variation in the disposition effect across mutual funds. Using a new methodology to reduce the disposition effect exhibited by mutual fund investments, we find no increase in their profitability. Although statistically significant, the disposition effect has only a minor economic effect on fund performance.

Suggested Citation

  • Manuel Ammann & Alexander Ising & Stephan Kessler, 2012. "Disposition effect and mutual fund performance," Applied Financial Economics, Taylor & Francis Journals, vol. 22(1), pages 1-19, January.
  • Handle: RePEc:taf:apfiec:v:22:y:2012:i:1:p:1-19
    DOI: 10.1080/09603107.2011.595676
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    File URL: http://hdl.handle.net/10.1080/09603107.2011.595676
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    Cited by:

    1. Young Doo Kim & Young-Won Ha, 2016. "Who is afraid of disposition of financial assets? The moderating role of regulatory focus in the disposition effect," Marketing Letters, Springer, vol. 27(1), pages 159-169, March.
    2. Marco Pleßner, 2017. "The disposition effect: a survey," Management Review Quarterly, Springer;Vienna University of Economics and Business, vol. 67(1), pages 1-30, February.
    3. Soler-Domínguez, Amparo & Matallín-Sáez, Juan Carlos, 2016. "Socially (ir)responsible investing? The performance of the VICEX Fund from a business cycle perspective," Finance Research Letters, Elsevier, vol. 16(C), pages 190-195.

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