Title page for ETD etd-05242007-144846


Type of Document Dissertation
Author Xu, Zhaojin
Author's Email Address lilyxu@vt.edu
URN etd-05242007-144846
Title Selling Winners, Holding Losers: Effect on Mutual Fund Performance and Flows
Degree PhD
Department Finance, Insurance, and Business Law
Advisory Committee
Advisor Name Title
Singal, Vijay Committee Chair
Cliff, Michael T. Committee Member
Kadlec, Gregory B. Committee Member
Keown, Arthur J. Committee Member
Ovtchinnikov, Alexei Committee Member
Keywords
  • Fund Flows
  • Mutual Funds
  • Disposition Effect
  • Capital Gains
  • Tax Overhang
  • Fund Performance
Date of Defense 2007-05-10
Availability unrestricted
Abstract
In this dissertation, we examine whether the disposition effect, the tendency to sell winners and hold losers, exists among U.S. equity mutual funds and how the disposition effect influences fund performance and particularly flows. We find that a significant fraction (32%) of all funds exhibit some degree of disposition behavior. These funds underperform funds that are not disposition prone by 4-6% per year.

Moreover, we find that the disposition effect has a significant impact on future fund flows. Without controlling for performance, disposition-prone funds experience 2-3% less flows each quarter than other funds. The difference in flows is probably due to poor performance of such funds. However, even after controlling for performance and other factors that potentially influence flows, funds with a high disposition effect experience 0.7-2% less flows than funds without such behavior.

Past research has found that funds with low tax overhang garner larger inflows. Though disposition-prone funds are likely to have a lower tax overhang because they sell their winners quickly, we find that fund flows to disposition-prone funds are smaller than flows to non-disposition oriented funds after controlling for tax overhang. These results suggest that performance and tax efficiency as well as tax overhang are all important to mutual fund investors.

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