To Sell or Not to Sell? Disposition Effect and Investment Style

Abstract

In my sample of US mutual funds, the disposition effect is driven by investment style. I find a strong disposition effect for value funds, but I find no disposition effect for growth funds. Focusing on a subsample of managers who manage value and growth funds at the same time, I find that these managers show a disposition effect for their value funds but do not show a disposition effect for their growth funds. This finding casts doubt on whether the disposition effect really should be thought of as a behavioral bias. The finding that the disposition effect leads managers to make worse selling decisions is much more surprising than the existence of the disposition effect itself.

Keywords: Mutual Funds, Disposition Effect

JEL Classification: G11, G23, G40