Stock Repurchasing Bias of Mutual Funds

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