Stock Repurchasing Bias of Mutual Funds

Abstract

The paper shows that mutual funds’ trading experiences bias their future repurchasing
decisions. Mutual funds are less likely to repurchase a stock if they previously
sold the stock for a loss rather than for a gain. After switching to managing a different
fund, fund managers still avoid repurchasing stocks they sold for a loss at a past fund.
We do not find that mutual fund managers are biased against repurchasing past loser
stocks because of superior information. Though less likely to be repurchased, repurchased
losers do not underperform repurchased winners – and the fund itself – in the
subsequent quarter.

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

JEL Classification: G11, G23, G41