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Market states and disposition effect: evidence from Taiwan mutual fund investors


  • Jen-Sin Lee
  • Pi-Hsia Yen
  • Kam C. Chan


We study the disposition effect across market states in the context of mutual fund investors in Taiwan. Using mutual fund data at the fund and individual levels during July 2001 to October 2008, we find that the disposition effect varies across market states. Our results suggest that investors redeem their mutual fund units more under a bear market than a bull market when they have extreme capital losses. When investors have moderate capital gains, they are less active in redeeming their mutual fund units under a bull market relative to a bear market. Under a neutral market, investors actively redeem mutual fund units in both winner and loser mutual funds except when they have extreme capital losses. Thus, disposition effect is not uniform; it varies by market condition. In addition, the disposition effect phenomenon also exists for Taiwan mutual fund investors as well. Our findings are robust to aggregate and individual investor levels.

Suggested Citation

  • Jen-Sin Lee & Pi-Hsia Yen & Kam C. Chan, 2013. "Market states and disposition effect: evidence from Taiwan mutual fund investors," Applied Economics, Taylor & Francis Journals, vol. 45(10), pages 1331-1342, April.
  • Handle: RePEc:taf:applec:45:y:2013:i:10:p:1331-1342
    DOI: 10.1080/00036846.2011.617696

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    1. Leite, Paulo & Cortez, Maria Céu, 2015. "Performance of European socially responsible funds during market crises: Evidence from France," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 132-141.

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