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Selling Losers and Winners: A Test of the Disposition and House Money Effect

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  • PI-HSIA YEN

    (Yu Da University of Science and Technology)

Abstract

This paper test of the disposition and house money effect across market states in the context of mutual fund investors in China, based on a sample period that extends from January 2006 to December 2017. Previous studies primarily document the existence of the disposition effect in China without addressing: first, the impact of market states (bullish, bearish and neutral market) on the investors? disposition effect; and, second, we separate the fund performance according to the different levels of gains and losses. Our results suggest that investors are characterized by a house money effect when they have extreme capital gains under a bull market, and investors are characterized by an inverse disposition effect (they redeem their losing mutual fund units) when they have moderate capital losses under a neutral market. Thus, disposition effect is not uniform; it varies across market states in China. Our findings are robust to aggregate, investor levels, and the others robustness testing factors.

Suggested Citation

  • Pi-Hsia Yen, 2018. "Selling Losers and Winners: A Test of the Disposition and House Money Effect," Proceedings of Economics and Finance Conferences 6910161, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:6910161
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    File URL: https://iises.net/proceedings/10th-economics-finance-conference-rome/table-of-content/detail?cid=69&iid=040&rid=10161
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    More about this item

    Keywords

    disposition effect; mutual fund investors; market states; house money effect; China;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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