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Disposition Effect and Mutual Fund Performance

39 Pages Posted: 8 Jun 2011  

Manuel Ammann

University of St. Gallen - School of Finance

Alexander Ising

University of St. Gallen

Stephan Kessler

Universität St. Gallen - Swiss Institute of Banking and Finance

Date Written: June 6, 2011

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.

Keywords: disposition effect, mutual fund performance, behavioral finance

JEL Classification: G11

Suggested Citation

Ammann, Manuel and Ising, Alexander and Kessler, Stephan, Disposition Effect and Mutual Fund Performance (June 6, 2011). Available at SSRN: https://ssrn.com/abstract=1858930 or http://dx.doi.org/10.2139/ssrn.1858930

Manuel Ammann

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Alexander Ising

University of St. Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

Stephan Kessler (Contact Author)

Universität St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstr. 52
CH-9000 St.Gallen
Switzerland

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