Stock Repurchasing Bias of Mutual Funds

43 Pages Posted: 14 Sep 2018 Last revised: 14 Jan 2021

See all articles by Mengqiao Du

Mengqiao Du

University of Mannheim - Department of Finance

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance

Terrance Odean

University of California, Berkeley - Haas School of Business

Date Written: May 1, 2019

Abstract

We show that mutual fund managers' trading experiences bias their future repurchasing decisions. Specifically, a fund is 17% more likely to repurchase a stock when it previously sold the stock for a gain rather than for a loss. Fund managers still prefer to repurchase stocks they sold for a gain at a past fund after they switch to another fund. Against the informed-trading hypothesis, the repurchasing bias harms fund performance: repurchased winners outperform funds trading these winners by over 6% per year between the sale and repurchase; repurchased losers significantly outperform funds after the repurchase while repurchased winners do not.

Keywords: Stock Repurchasing, Mutual Funds, Performance, Behavioral Bias

JEL Classification: G11, G23, G41

Suggested Citation

Du, Mengqiao and Niessen-Ruenzi, Alexandra and Odean, Terrance, Stock Repurchasing Bias of Mutual Funds (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=3247066 or http://dx.doi.org/10.2139/ssrn.3247066

Mengqiao Du (Contact Author)

University of Mannheim - Department of Finance ( email )

L9, 1-2
Mannheim, 68161
Germany

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance ( email )

Mannheim, 68131
Germany

Terrance Odean

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-6767 (Phone)
510-666-2561 (Fax)

HOME PAGE: http://www.haas.berkeley.edu/faculty/odean.html

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
221
Abstract Views
2,410
rank
158,599
PlumX Metrics