“Old” Money Matters: The Sensitivity of Mutual Fund Redemption Decisions to Past Performance

摘要

This paper shows that individual investors are reluctant to sell mutual funds that have appreciated in value and are willing to sell losers, in stark contrast to their stock trading where the disposition effect dominates. Comparison of trades in taxable and tax-deferred accounts suggests that a good share of this negative relation can be explained by tax-motivated trading, with the remainder of the negative relation consistent with investors’ belief in fund performance persistence. Aggregating transactionlevel data for a sample of individual investors to construct fund inflows and outflows, we find that both inflows and outflows of individual investors are sensitive to past performance, but in very different ways. Inflows are largely driven by “relative” performance, suggesting that new money chases the best performers in an objective, with little relation to the fund’s “absolute” performance. In contrast, outflows are exclusively driven by the absolute performance of the fund, the relevant benchmark for tax purposes, with little relation to relative performance.