Finance Seminar（2015-36）

Topic:V-Shaped Disposition: Mutual Fund Trading Behavior and Price Effects

Speaker:Li An, PBC School of Finance at Tsinghua University

Time:Wednesday, 25 November, 10:00-11:30

Location:Room B34, Guanghua Building 2

Abstract:

This study investigates the trading behavior and price effects of mutual fund managers by examining their selling schedules in response to unrealized profits. We present three sets of results: first, mutual fund managers tend to sell relatively big winners and big losers { a 1% increase in the magnitude of unrealized gains (losses) is associated with a 1.49 (.63) bps higher probability of selling. Second, we link this selling behavior to equilibrium prices by aggregating unrealized profits across funds for each security. Consistent with the relative magnitude of the selling behavior results, we find that a 1% increase in the magnitude of the security-level unrealized gains (losses) predicts a 1.4 (.9) bp increase in future monthly returns. Third, we further explore the link between trading behavior and price effects by examining the cross-sectional heterogeneity of fund characteristics - funds with higher turnover, shorter holding period, and higher expense ratios are significantly more likely to manifest such a trading pattern, and capital overhang from such funds have stronger return predictability.

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