Stock Repurchasing Bias of Mutual Funds
43 Pages Posted: 14 Sep 2018 Last revised: 14 Jan 2021
Date Written: May 1, 2019
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: Suggested Citation