Stock Repurchasing Bias of Mutual Funds

55 Pages Posted: 14 Sep 2018 Last revised: 14 Jun 2022

See all articles by Mengqiao Du

Mengqiao Du

University of Mannheim

Alexandra Niessen-Ruenzi

University of Mannheim, Department of Finance; University of Mannheim - Department of Finance

Terrance Odean

University of California, Berkeley - Haas School of Business

Date Written: May 1, 2019

Abstract

The paper shows that mutual funds' trading experiences bias their future repurchasing decisions. Mutual funds are 17% 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 outperform repurchased winners--and the fund itself--in the subsequent quarter.

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

JEL Classification: G11, G23, G41

Suggested Citation

Du, Mengqiao and Niessen-Ruenzi, Alexandra 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 ( email )

L9, 1-2
Mannheim, 68161
Germany

Alexandra Niessen-Ruenzi

University of Mannheim, Department of Finance ( email )

L9, 1-2
Mannheim, 68131
Germany
+49 621 181 1595 (Phone)

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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