Keywords
mutual funds, disposition effect, price pressure, cross-sectional return predictability
Abstract
We link a seemingly biased trading behavior to equilibrium asset prices. U.S. equity mutual fund managers tend to sell both their big winners and big losers. This selling pressure pushes down current prices and leads to higher future returns; aggregating across funds, we find that securities for which investors have large unrealized gains and losses outperform in the subsequent month. Funds with larger turnover, shorter holding period, and higher expense ratios, are significantly more likely to manifest this trading pattern, and unrealized profits from such funds have stronger return predictability. This cross-sectional return predictability is difficult to reconcile with alternative explanations. (JEL classification: G11, G12, G23, G40)
Original Publication Citation
“Overselling Winners and Losers: How Mutual Funds Trading Affects Asset Prices” with Li An. Journal of Financial Markets, June 2020.
BYU ScholarsArchive Citation
An, Li and Argyle, Bronson, "Overselling Winners and Losers: How Mutual Fund Managers' Trading Behavior Affects Asset Prices" (2020). Faculty Publications. 8960.
https://scholarsarchive.byu.edu/facpub/8960
Document Type
Peer-Reviewed Article
Publication Date
2020
Publisher
Journal of Financial Markets
Language
English
College
Marriott School of Business
Department
Finance
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