Stock Repurchasing Bias of Mutual Funds

61 Pages Posted: 14 Sep 2018 Last revised: 4 Nov 2019

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 2019

Abstract

We show that mutual fund managers' trading experiences bias their future repurchasing decisions. Specifically, a stock's repurchasing probability at a given fund is 17% larger if it was previously sold for a gain rather than for a loss. In line with positive trading experience driving repurchasing decisions, we find that fund managers still prefer to repurchase stocks sold for a gain at a fund they managed before if they switch to a new fund. In addition, repurchasing bias is stronger if the previous sale is more salient to fund managers, and thus should be more easily remembered. Repurchasing bias is weakly associated with lower fund performance: repurchased winner stocks underperform repurchased loser stocks by around 5% p.a., which is mainly due to mean-reversion of stock returns.

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 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

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