Change is Good or the Disposition Effect Among Mutual Fund Managers

28 Pages Posted: 25 Mar 2005

See all articles by Anna Scherbina

Anna Scherbina

Brandeis University

Li Jin

Harvard Business School - Finance Unit

Date Written: February 25, 2005


We document that mutual fund managers exhibit the disposition bias, or the tendency to hold on too long to poorly performing stocks. This bias arises because of the psychological unwillingness to admit past mistakes. We show that new fund managers, who are emotionally unattached to their predecessors' decisions, sell the momentum losers they have inherited more readily than continuing fund managers. They also sell more losers than winners, and this difference is higher than for continuing managers. The results are robust to various measures of trade and definitions of the control group. The effects are more pronounced when the outgoing manager is young, perhaps because new managers have less respect for the portfolio decisions of younger predecessors. Given that mutual funds hold a large fraction of the U.S. equity market, this finding may shed light on the origins of price momentum.

Keywords: Disposition effect, mutual funds, managerial change, momentum

JEL Classification: G00, G12, G14, G23

Suggested Citation

Scherbina, Anna D. and Jin, Li, Change is Good or the Disposition Effect Among Mutual Fund Managers (February 25, 2005). AFA 2006 Boston Meetings Paper, Available at SSRN: or

Anna D. Scherbina (Contact Author)

Brandeis University ( email )

415 South Street
Waltham, MA 02453
United States


Li Jin

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-5590 (Phone)
617-496-5271 (Fax)

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