Disposition effect in Spanish domestic equity funds

Transcription

1 Dsposon effec n Spansh domesc equy funds Crsna Orz Accounng and Fnance Deparmen. Unversdad de Zaragoza (Span) José Lus Saro Accounng and Fnance Deparmen. Unversdad de Zaragoza (Span) Absrac Ths paper approaches he dsposon effec n Spansh domesc equy porfolo managers. There s no sgnfcan endency o hold on losses and sellng wnners for sophscaed nvesors for he enre perod. However, a hgh proporon of funds shows dsposon effec, especally subsamples ha correspond o mporan downward rends n sock markes. Funds ha hold a small number of socks wh hgher pas reurns are more prone o dsposon effec and pas performance s posvely relaed o dsposon effec. Ths sudy s he frs o show ha dsposon effec mgh no be a cognve bas nheren o he person, bu depends on he ype of sock. Socks wh small fund porfolo shares are more prone o be hold ono losses han on wnners. The specal bes of managers for small proporon of he porfolo are also dsposon-drven behavour. Crsna Orz would lke o acknowledge he fnancal suppor provded by he research projec of he Unversy of Zaragoza for young researchers. Any possble errors conaned n hs paper are he exclusve responsbly of he auhors. 1

2 Dsposon effec n Spansh domesc equy funds 1. Inroducon The nfluence of psychology n busness, and especally n fnance, s aracng hgher neres o academcs and praconers durng he las years. In hs paper we focus on he behavoural bas dsposon effec as ermed by Shefrn and Saman (1985). Dsposon effec defnes he endency o hold on losses and sell wnners oo soon, ha s, he preference for realzng wnners raher han losers. There are wo man sreams of research, nvesgang he dsposon effec on an ndvdual level or porfolo managers. Consderng ndvdual nvesors, he exsence of dsposon effec s confrmed analysng daa from brokerage houses (Odean, 1998; and Feng and Seasholes, 2005, among ohers). There s a lne of research abou he decsons on muual funds shares, for nsance, n he US Baley e al. (2011) calculae several behavoural bases and es her nfluence on nvesors muual fund choces and Calve e al. (2009) show ha he level of dsposon effec n Sweden s dfferen regardng wheher household decsons are made on sock marke or muual fund marke. Some sudes are able o conduc comparsons beween ndvdual and professonal managers. Shapra and Veneza (2001) fnd ha professonally and selfmanaged accouns n Israel dsplay dsposon effec, alhough he effec s weaker for ndvdual nvesors. Grnbla and Keloharju (2001) also confrm he exsence of dsposon effec for he Fnnsh marke for all ypes of nvesors. Barber e al. (2007) analyse he rades of he Tawanese Sock Exchange and suppor ha ndvduals are relucan o realse losses, whle muual funds are no. Chen e al. (2007) documen, wh a Chnese brokerage accoun daa, ha nsuonal nvesors suffer a weaker dsposon effec. Focusng on managers radng Frazzn (2006) shows srong endency for muual fund managers o sell a hgher proporon of wnners han losers and confrm Wermers (2003) fndng ha managers of underperformng funds appear relucan o sell her losng socks. In a recen paper, Cc (2012) fnd ha a subsanal fracon of US equy muual funds exhbs dsposon effec bu no on aggregaed erms. 2

3 Addonally, Weber and Camerer (1998) propose an expermenal desgn and confrm he exsence of he dsposon effec, Weber and Welfens (2011) demonsrae on an arfcal seup ha he magnude of he dsposon effecs vares across nvesors and can reverse, and Dorn and Srobl (2011) propose a raonal expecaons model wh asymmercally nformed nvesors o reconcle dsposon effec wh raonal behavour. 1 The decsons of sellng or holdng socks have been esed worldwde, such as Porugal n Leal e al. (2010) wh ndvdual nvesors sock brokerage home, Tawan n Lee e al. (2013) or n he Chnese sock marke n Duxbury e al. (2015) usng nvesorlevel daa. Ths paper examnes he exsence of dsposon effec wh a valuable monhly daase n an unexplored marke as Spansh one. 2 In general, professonal managers have been less suded and needs furher examnaon. Ths sudy shows ha for he enre perod consdered here s no sgnfcan prevalence for realzng wnners han losers bu a hgh proporon of muual funds have posve dsposon spreads. However, analysng dfferen subsamples, we fnd ha he las perod from July 2008 o December 2011 presens a hgher and sgnfcan propensy o hold ono losers whle maeralzng gans. The sudy of Cc (2012) saes ha n he US, learnng effecs have reduced he manfesaon of he dsposon effecs over me. Smlarly, Feng and Seasholes (2005) show ha sophscaon and radng experence reduce he propensy o realze gans n Chna. However, our resuls seem o be mosly relaed o he consderaon of dfferen marke saes; n hs lne, Lee e al. (2013) argue ha nvesors can be affeced by marke condons and by also dfferen for exreme or moderae losses as n Grnbla and Keloharju (2001). Alogeher, Lee e al. (2013) fnd ha nvesors redeem her muual fund uns more under a bear marke han a bull marke when hey have exreme capal losses. Secondly, hs sudy also approaches he poenal dfferences for a fund o be more prone o realze gans han losses wheher s managed by only one person or by a eam. Dfferen explanaons can be provded. On one hand, akng decsons ogeher mgh reduce he aachmen of a manager o a ceran sock, bu on he second hand he 1 Dsposon effec s also documened for professonal fuure rades n Locke and Mann (2005) and Choe and Eom (2009); and for T-bond fuures rades n Coval and Shumway (2005). 2 Usng quarerly fund rades msses 18.5% of fund rades usng monhly daa n US marke (Elon e al., 2010) and msses 38% of fund rades n he Spansh marke (Orz e al., 2015) 3

4 eam managemen mgh also lead owards grouphnk defned as a poenal bas n makng opmal decsons due o he desre of reachng o an easy unanmy agreemen. The resuls of Cc (2012) relae o he laer and repors ha eam managemen canno reduce he exsence of dsposon effec among muual funds. Conrarly, for Spansh domesc equy managemen, here s small dfference beween boh managemen organzaons, bu slghly hgher level of dsposon effec for ndvdual managers. Addonally, we examne he dsposon effec from a new perspecve. We hypohesze ha he exsence of dsposon effec s dfferen upon he sock a manager s makng sellng decsons on. For ndvdual nvesors, Kumar (2009) shows ha behavoural bases are sronger when socks are harder o value. Ths sudy provdes a frs approach o consderng dsposon effec no only as a cognve bas assocaed o managers, bu relaed o he sock consdered. We focus on he ype of sock, wheher he socks are lsed n he Spansh Sock Exchange or hey are nernaonal socks. Secondly, we fnd neresng resuls analysng he wegh he socks have n he porfolo. We hypohesze ha managers level of aachmen o a sock mgh vary dependng on he porfolo share of ha sock. The manager mgh have wo dfferen conradcory nfluences when evaluang sellng decsons, on he one hand he regre of realsng losses, bu on he oher hand hey mus repor her porfolos and nvesors would no welcome n her op en posons socks wh paper losses. The resuls confrm ha here are sgnfcan dfferences n he levels of dsposon effec. The socks wh hgher porfolo shares have a hgher propensy o realze wnners han losers. A complmenary analyss shows how managers are nfluenced by he level of aachmen o her decsons. The socks ha are only repored n a few funds are supposed o be a clear sgn of a specal be of he managers who seleced hem. Indeed, hose socks wh scarce presence n he funds realze losses more readly han gans. However, hs concluson only remans when he wegh of hose socks n he porfolos are low. Fnally, we provde evdence of some fund characerscs ha mgh lead o dsposon-drven behavour. Funds wh a small number of socks n he porfolos are more prone o show dsposon effec as well as funds wh lower fees. The sze of he fund famly seems o be affecng he propensy o realze losses more readly han gans. Ths fndng s especally neresng n he Spansh equy fund ndusry ha s very concenraed. 4

5 In Secon 2 we descrbe he daa sample collecng process; Secon 3 deals he phenomenon of dsposon effec and he compung procedure and shows he resuls of he analyss by subsample perods n Spansh domesc equy funds. In Secon 4 we consder complemenary analyses o dsenangle he source of dsposon effec such as he managng organzaon and he nfluence of he ype of sock beng evaluaed. In Secon 5 llusraes he relaonshp beween fund characerscs and he propensy o dsposon effec. A fnal secon concludes. 2. Daa Porfolo holdngs daa for Spansh domesc equy fund are provded by he Spansh Secures Exchange Commsson (CNMV). The money nvesed n each sock s provded. The daa s monhly from December 1999 o December 2006, and quarerly hereafer. Ths quarerly nformaon s merged, f possble, wh Mornngsar monhly porfolo holdngs usng he ISIN codes of he funds and of he ndvdual asses. The fnal daabase comprses he perod from December 1999 o December The sock nformaon s obaned from several sources such as Daasream, Mornngsar, and he Madrd Sock Exchange (Bolsa de Madrd). To be ncluded n he sample a fund mus be n accordance wh he nvesmen objecve declared, ha s, nvesng prmarly n domesc equy secures. For robusness, we also exclude from he analyss ndex funds where sellng radng s no srcly a managers decson. The fnal sample, ha s free of survvorshp bas, ncludes 145 funds wh 10,949 fund monh observaons. We conrol prce daa nformaon and spls, share ncreases, mergers and acqusons for 1,152 socks nvolved n 984,768 ransacons. Consderng muual fund ransacons may arse he problem of frequency daa. Ths s no a problem for ndvdual brokerage house nvesors whch have complee nformaon on he momen he ransacon akes place. The exac momen when muual fund managers realse he radng s no known. However, hs s parally solved n hs paper wh monhly nformaon, oher papers used quarerly ransacons and ha means a loss of nerm rades (Elon e al, 2010). Table 1 repors some summary characerscs of our equy fund sample a hree dae pons. There exs 99 domesc equy funds n December 1999 and 68 a he end of Ths s no a sreakng resul due o he reorgansaon of he bankng sysem n Span durng hose years. There was an nense mergng process a nsuonal level 5

6 whch also ranslaes o fund mergers. Addonally, we are resrcng he muual fund sample o domesc equy funds. The decrease n he number of domesc equy funds and he downward rends of he fnancal crss provoke a dramac fall n he asses under managemen n hs caegory. The level of conrol of he sample s very hgh wh an average 99.09% of he asses for he enre perod. Those are he asses whose socks have full nformaon needed for he analyss. Ths level of conrol provdes robusness o our resuls of he evaluaon of dsposon effec. Table 1 Muual fund sample Ths able repors summary characerscs of our sample of domesc equy muual funds a four dae pons, Dec1999, Dec2003, Dec2007 and Dec2011. The able shows he number of funds a each dae, he oal amoun of asses ogeher wh he asses of he smalles and he larges fund; he average number of sock posons a each dae ogeher wh he mnmum and maxmum number of posons; and he percenage of he porfolo whose asses are conrolled wh complee sock nformaon needed for he analyss. Dec1999 Dec2003 Dec2007 Dec2011 Number of funds Toal asses ( mllons) Mnmum per fund ( mllons) Maxmum per fund ( mllons) Average sock posons Mnmum per fund Maxmum per fund % of he porfolo conrolled 98.30% 99.09% 99.54% 99.62% 3. Measurng dsposon effec Invesors suffer from dfferen cognve bases ha nfluence porfolo managemen. Menal accounng refers o he nclnaon o focusng on gans and losses from ndvdual sock posons raher o focusng on he performance of he whole porfolo. Secondly, he form of he Prospec Theory value funcon shows ha nvesors are rsk averse for gans bu rsk seekng for losses. Alogeher wh he regre o acknowledge msakes, nvesors are prone o hold ono her losers o pospone or even avod (hopng a recovery n prces) admng her msakes. Socks mus, herefore, be reaed ndvdually n he compung process as follows. As a frs sep, we mus compue wheher a sell akes place whn a monh. We compue he number of shares held by each sock n a porfolo as he money value of 6

7 he poson dvded by he prce of he sock he las day of he monh. We also compue a reference pon o resrc he arbuon of buy or sell. Ths reference pon s 500 dvded by he las prce of he sock a gven monh. 3 When he number of shares of a perod mnus he number of shares of he prevous perod s negave and hgher n absolue erms han he reference pon we consder a sell. The consderaon of sell also conrols for spls of he socks n he sample. Addonally, we conrol for socks whch have been excluded from he marke. In hs case, we canno consder hose rades as sells for our sudy because he end of ha poson s no a manager decson. To deermne he exsence of dsposon effec, s necessary o make assumpons abou he cos and sell prces. As explaned before, dsposon effec s based on a combnaon of menal accounng and Kahneman and Tversky s Prospec Theory (1979) whch are bul upon he exsence of a reference pon. Gven ha we can never know he exac momen a ceran sock rades whn he monh, we consder he purchase prce he prce of he las day of he monh. When successve purchases ook place, we follow an average purchase prce approach. Early sudes such as Odean (1998) and Cc (2012) confrm ha he resuls are essenally he same for oher consderaons as hghes purchase prce, he frs purchase prce or he mos recen purchase prce. Regardng he sellng momen, as we do no know he exac momen, we consder he average prce of he las perod. Noe ha he frequency of he porfolo holdngs s no consan whn a fund dependng on he mergng process explaned before. We ook ha no accoun o compue he average prce of he perod whn he wo porfolo holdngs repors. As n prevous sudes, we use Odean s (1998) mehodology and we compue he proporon of gans realzed, PGR, and he proporon of losses realzed, PLR, for each fund and each monh: PGR PLR RG (1) RG UNRG RL (2) RL UNRL Where RG s he number of realzed capal gans by fund n monh, s he number of unrealzed gans, RL s he number of realzed losses, and UNRG UNRL s he number of unrealzed losses. From he measures of equaons 1 and 2 we can defne 3 Please noe ha he source of nformaon s n housands of euros. 7

8 he dsposon spread as follows: DISP PGR PLR. Ths dsposon spread wll gve us nformaon abou n whch proporon funds are affeced by he dsposon effec. Realzed gans, paper gans, realzed losses, and paper losses are summed for each fund dae. Nex we compue he me-seres mean of PGR, PLR and DISP raos for each fund. We also repor he proporon of funds wh posve average dsposon raos. The dsposon rao s calculaed on he number of ransacons and on he euro value of he ransacons. We nclude a more resrcve measure o compue dsposon effec n erms of euro, ha s ha when a paral sell occurs, we compue he amoun of he sell as a realsed gan or loss and he amoun of money ha says n he porfolo holdng as a paper gan or loss. The analyss of he number of realzed or paper gans/losses n Panel A of Table 2 ndcaes ha he magnude of he aggregae dfference beween he proporon of gans realzed and he losses realzed s a non-sgnfcan 1.7%, whch s smaller han he 5% repored n Odean (1998) for ndvdual nvesors and he 20% repored n Leal e al. (2010) for Poruguese nvesors. These resuls are conssen wh he fndngs of Grnbla and Keloharju (2001) and Barber e al. (2007), he level of sophscaon of he nvesors nfluence he preference for realzng wnnng socks whle connung o hold losng ones. Table 2: Dsposon rao by subperod Ths able repors he proporon of realzed gans (PGR), he proporon of realzed losses (PLR) and he dfference n proporons (DISP). The dsposon effec s compued usng he number of ransacons n Panel A, he euro value of he ransacons n Panel B and Panel C compues paral sells ncludng he par of he realzed and paper gan or loss. Each panel also repors he fracon of funds wh posve average dsposon rao. The sascs are compued for he enre perod and for hree subsamples: , 2004-Jun2008 and Jul Panel A: Number of ransacons Enre perod Jun2008 Jul PGR PLR DISP p-value % funds > % 57.14% 54.31% 72.63% 8

9 Panel B: Euro value ransacon when ransacon occurs Enre perod Jun2008 Jul PGR PLR DISP p-value % funds > % 68.91% 22.41% 71.58% Panel C: Euro value ransacons Enre perod Jun2008 Jul PGR PLR DISP p-value % funds > % 68.07% 27.59% 57.89% Compared wh oher markes, he level of dsposon effec repored n Frazzn (2006) for US managers ( ) was 3% and -1% deeced n Cc (2012), who canno confrm dsposon effec n managers n he Uned Saes for he perod Ths las resul, apparenly conradcory for he same marke, s explaned n Cc (2012) as welcomng news snce managers ncreased awareness of behavoural bases n recen years. Table 2 also spls he perod n dfferen subsamples bu no here s no learnng effec n he resuls, n fac, he level of dsposon effec ncreased hrough me. These resuls mgh be explaned because he las par of our sample corresponds wh he perod of fnancal crss (Jul ) wh srong capal losses. These fndngs are, herefore, more n lne wh Grnbla and Keloharju (2001) ha documen ha whle boh moderae and exreme losses decrease nvesor propensy o sell her nvesmens, he effec s larger when nvesors experence exreme losses over moderae losses. Smlarly, Lee e al. (2013), analysng he redempon of muual fund uns n Tawan, fnd ha when a muual fund has an exreme capal loss, he muual fund nvesors redeem less of her uns. If we analyse he euro value of ransacons n Panel B of Table 2, he resuls are smlar for he enre perod bu dffer when we look a he dfferen subperods, he resuls are now sgnfcan. The average resuls for he enre perod are caused by mporan dfferences n he dfferen subsamples. The resuls are robus n Panel C where paral sells are compued boh, as a proporon of paper and realsed values. 9

10 In he hree panels of Table 2, PGR and PLR are hgher for he perod from July 2008 o December 2011, whch means ha durng he fnancal crss here was more sellng acvy among equy funds. Regardless of he mehod used, on average, we canno conclude ha muual fund managers sgnfcanly prefer realzng gans han losses, bu here s heerogeney among muual funds, hus among 45% and 64% of he sample do exhb posve dsposon spreads. However, here s sgnfcan dsposon effec durng he perods and he fnal par of he sample ha corresponds wh he fnancal crss. Boh subsamples concde wh downward endences n he sock markes. 4. Complemenary ess on he source of dsposon effec 4.1 Managemen organsaon There s relaed leraure abou he dfferenal managemen behavour wheher a ceran fund s managed by only one person or by a eam of managers. The nformaon abou he hsory of he managers s provded by Mornngsar. 4 The raos PGR and PLR are larger n eam managed funds wha ndcaes ha he laer rade more acvely. In Panel A, we repor sgnfcan dfferences beween PGR and PLR bu n erms of dsposon spread he dfferences are smaller. In general erms, funds managed ndvdually show a slghly hgher level of dsposon effec. Furher nvesgaon s needed n hs feld because here are many doubs abou he rue managemen organsaons whn a fund and whn fund famles. Table 4: Dsposon effec on managemen organsaon Ths able repors he proporon of realzed gans (PGR), he proporon of realzed losses (PLR) and he dfference n proporons (DISP). The dsposon effec s compued usng he number of ransacons n Panel A, he euro value of he ransacons n Panel B and Panel C compues paral sells ncludng he par of he realzed and paper gan or loss. Each panel also repors he fracon of funds wh posve average dsposon rao. The DIFF column s he dfference of PGR and PLR raos for one manager or a eam managed fund and he p-value of he dfference n means. A fund s ncluded n he analyss only when we have full nformaon wheher he funds n eam managed or ndvdually managed. 81 funds are ncluded. 4 The name of he managers s no always hsorcal, a fund s only ncluded n he sample snce full nformaon s avalable. The number of funds for hs analyss s hen reduced o 81 funds. 10

11 Panel A: Number of ransacons One manager Team managed DIFF p-value PGR PLR DISP p-value % funds > % 55% Panel B: Euro value ransacon when ransacon occurs One manager Team managed DIFF p-value PGR PLR DISP p-value % funds > % 52.50% Panel C: Euro value ransacons One manager Team managed DIFF p-value PGR PLR DISP p-value % funds > 0 50% 45% 4.2 Dsposon effec a sock level A furher analyss on he source of dsposon effec s needed. Our resuls show ha dsposon effec s no a generalsed bas among domesc equy fund nvesors, one reason mgh rely on he exsence of dfferen propensy o realze losses wheher your decson mus be made for dfferen ypes of socks. On a frs sage, we focus our aenon on he domcle of he socks, splng wheher hey are domesc or nernaonal based. The nvesmen aude has usually shown o be dfferen regardng he level of proxmy and nformaon of he enerprse. Secondly, we hypohesze ha he level of aachmen o a sock mgh vary dependng on he wegh ha sock has on your porfolo. The manager mgh have wo dfferen nfluences, on he one hand he regre of realsng losses, bu on he oher hand hey mus repor her porfolos and nvesors would no welcome n her op en posons socks wh paper losses. Addonally, we consder he number of funds ha hold a ceran sock. We hypohesze ha he regre of realzng losses s no probably he same when everyone else makes he same msakes. You hae o make a loss when your bes deas are no workng ou. Therefore, we would expec ha he level of 11

12 dsposon effec s hgher for hose socks ha appear n a smaller number of fund porfolos. From he oal number of socks we conrol full nformaon, we collec socks ha rade a leas wce and consdered n more han one fund. The fnal sample for hs analyss comprses 695 socks. Realzed gans, paper gans, realzed losses, and paper losses are summed for each sock dae o compue PGR and PLR raos. Then we aggregae hose raos o compue DISP spread for each sock. 5 The consderaon of he qunle of a sock share n porfolos s compued as follows. Every monh s calculaed he wegh of each sock n s porfolos, wh he whole sample we compued he breakpons of he qunles and classfed sock every monh. Therefore, a sock could be n dfferen qunles n dfferen me perods. Table 5: Dsposon effec by socks Ths able repors he dsposon spread raos (DISP) compued a he sock level usng he number of ransacons. Panel A shows he DISP rao for he enre sample and spl by domesc (1) and nernaonal socks (2) and he es wheher here are sgnfcanly mean dfferences. Smlarly, we es wheher here are sgnfcan mean dfferences among socks gahered n Ibex35 (3) or he res of he socks of he sample (4). Panel B shows he DISP rao for qunles of socks calculaed as he wegh of a ceran sock n he porfolo holdng. Q1 gahers socks wh hgher share of he porfolo. 695 dfferen socks are ncluded for he analyss. Enre sample Spansh lsng (1) Foregn lsng (2) Panel A: Sock domcle DIFF (1)-(2) Ibex 35 (3) Oher socks (4) DIFF (3)-(4) DISP p-value % socks > % 61.32% 49.28% 64.44% 52.15% Panel B: Sock wegh n fund porfolos Q1 Q2 Q3 Q4 Q5 DIFF Q1 vs Q5 DISP p-value % socks > % 37.91% 39.22% 40.44% 35.52% Table 5 repors he resuls of he analyss of he dsposon effec a a sock level. The level of dsposon for he enre sample s almos 3%. Regardng he domcle of he socks (Panel A), we conclude ha domesc socks are usually hold n losses a a hgher proporon han n gans. The dsposon effec s even hgher for smaller 5 Please noe ha on a cross-secon analyss s no possble o ake euro value sascs. 12

13 domesc socks, snce he dsposon rao for Ibex35 socks s lower ha for he whole marke. Accordng o he resuls of Panel B of Table 5, we can conclude ha he propensy o sell s condoned by he wegh of a sock n he porfolo. The socks wh hgher percenages of fund porfolo shares (Q1) do no show sgnfcan dsposon spread, bu he negave rao ndcaes a endency o sell n losses raher han n gans. However, as he wegh n he porfolo decreases, here s an ncreasng sgnfcan endency o hold ono losses and sellng wnners soon. A furher look no he analyss by socks s done consderng a any me wheher ha sock s a specal be of he manager or refers o a sock amply conaned n he sample of funds. We compue he number of funds of he sample ha repor a ceran sock n her porfolos each monh. 6 Table 6: Dsposon effec by socks accordng o he presence n he funds Ths able repors he dsposon spread raos (DISP) compued a he sock level usng he number of ransacons. The frs wo rows show he resuls for specal bes of he managers, he followng wo rows show he resuls for common socks n he porfolos, and he las wo rows show he mean dfferences of he wo samples. Q1 gahers socks wh hgher share of he porfolo. 617 socks are n a momen n me specal bes and 332 socks are usually n fund porfolos. Enre subsample Q1 Q2 Q3 Q4 Q5 Specal bes DISP p-value Usual socks DISP p-value DIFF p-value Even hough he resuls n Table 6 are no always sgnfcan, hey show ceran paerns. The dsposon effec rao s hgher for socks ha represen manager personal decsons han for socks commonly presen n porfolos. We mgh hnk ha managers suffer dsposon effec on her specal bes probably due o her regre o recognze bad decsons. The rgh par of Table 6 also spls he resuls consderng he wegh of each sock n he porfolo. Those resuls call our aenon and le us make more precse he prevous saemen: managers suffer dsposon effec on her specal bes when 6 We consder ha a specal be refers o socks dsclosed n 3 or less funds of he sample. 13

14 hose bes represen a small proporon of her porfolos, hey show no sgnfcan dfferen n he propensy of realzng gans or losses when he decson s made on a sock wh a hgh proporon of he porfolo. 5. Wha nfluences he preference for sellng on wnners? In prevous secons we have analysed he exsence of dsposon effec under some assumpons. Ths secon presens a mulvarae approach ha allows us o nvesgae fund characerscs ha can lead o a dfferen aude oward sellng n gans or n losses n lne wh he analyss of Cc (2012). Table 7 summarzes he resuls of a panel logsc regresson on he lkelhood of he presence of dsposon effec n funds. Pas performance s sgnfcanly posve relaed o dsposon-drven behavour. Ths resul s conssen wh Lee e al. (2013) and Leal e al. (2010) n her analyses on he nfluence of marke saes on dsposon effec. When marke condons are favourable, managers show hgher loss averson, expecng a recovery of he poson. A sellng decson whn a fund porfolo can be due o lqudy decsons, n ha crcumsance he predsposon o sell wnners han losers mgh change. Dror e al. (1999) show n an psychologcal expermen ha parcpans n hgher levels of rsk saes were more prone o ake rsks. We hypohesse ha a fund manager who experences ouflows n he porfolo mgh be sufferng hs me pressure effec over her decsons o aend her clens redempons demands. However, he resuls of Table 7 canno confrm a varaon of he propensy o dsposon effec due o lqudy decsons. The coeffcen on number of socks llusraes he mporance of holdng a small number of socks. There s a hgher propensy o sell wnners raher han losers n funds ha hold a small number of socks. The manager s level of aachmen o a sock mgh be hgher when she owns fewer socks n he porfolo, he senmen of regre hen ncreases and managers fnd psychologcally panful o acknowledge her msakes. These resuls, even no drecly comparable are n lne wh he resuls of he analyss of Table 6 n he sense ha holdng a small number of socks or nvesng n socks ha no one else nves n produces a specal aachmen o your deas whch makes sellng decsons of loser posons be more dffcul. 14

15 Table 7: Logsc regresson resuls on he lkelhood of he presence of dsposon effec Ths able repors he resuls of a log regresson ha ams a fndng fund characerscs ha nduce he exsence of dsposon effec. Model: P(Posve dsposon spread)= f(monh dummes, excess reurn, ouflow dummy, number of socks, Herfndahl Index, fund asses, famly fund asses, fund urnover, fund fees, load). The panel daa ndcaes he varables a a fund level every repored perod. POSITIVE_DISP s an ndcaor varable ha akes he value of 1 for an observaon wh posve dsposon spread, and 0 oherwse. Explanaory varables are monh dummes (no repored), EXC_RET as he excess reurn of he pas welve monhs over he ndex, OUTFLOW s he dummy ha akes value 1 when he fund experenced ouflows and 0 oherwse. #STOCKS s he naural log of he number of socks held n he fund porfolo, HERFINDAHL_INDEX s he sum of he squares of he porfolo weghs n each sock, mulpled by Addonal ndependen varables n he regresson are FUND_TNA as he log of oal ne asses of he fund, FAMILY_TNA as he log of oal ne asses of he correspondng fund famly, TURNOVER as he fund s urnover rae n percenage erms, FUND_FEE as he fund s managemen and depos fee. All ndependen varables are lagged by one perod. The margnal probables are repored along wh he assocaed p-values n parenheses. Sandard errors are clusered by fund. Pseudo R 2 s compued as 1 mnus he log-lkelhood rao a convergence over he log-lkelhood rao a zero. Explanaory varables Inercep (0.023) Exc_RET (0.021) OUTFLOW (0.632) #STOCKS (0.078) HERFINDAHL_INDEX (0.867) FUND_TNA (0.953) FAMILY_TNA (0.064) TURNOVER (0.232) FUND_FEE (0.002) LOAD (0.408) Pseudo R N 8979 The resuls sugges ha when he level of fund fees s lower, he probably ha hs fund s lkely o exhb dsposon-drven behavor ncreases. The sze of he fund famly s a facor ha should also be analysed more n deph, especally n he Spansh muual fund marke ha shows a hgh level of concenraon. 7 Team effecs are analysed separaely on secon 4.1. The explanaory varable s no ncluded because managers nformaon s no always dsclosed. 15

16 6. Conclusons The endency of nvesors o hold losses oo long and sell wnners oo soon has wdely been esed and confrm for ndvdual nvesors, bu here are assored resuls for professonal nvesors. The resuls of hs sudy show ha, on aggregae here s no sgnfcan dsposon effec among managers, bu around 50% of he Spansh domesc equy funds have hgher propensy o realze gans han losses. The resuls are, however, sgnfcanly posve analysng dfferen subsamples for perod wh downward rends n he sock markes. The managemen organzaon of he fund may also play an mporan role n he prevalence of dsposon effec. Makng decsons n he frame of a eam reduces hs behavoural bas. As far as we know, hs s he frs paper ha approaches he dsposon effec n professonal nvesors from a sock level. The endency o hold on o losses mgh be drven by a ceran ype of socks; domesc socks no lsed n he Ibex35 are more prone o be sold n losses. The wegh of a ceran sock n he fund porfolo s shown o be a key aspec when makng sellng decsons of losers or wnners. Socks wh hgher percenages of fund porfolo shares end o sell n gans raher han n losses, and as he wegh n he porfolo decreases, here s an ncreasng sgnfcan endency o hold ono losses and sellng wnners soon. In an aemp o dsngush he senmen a manager mgh have owards he nvesmen decsons, we also consder wheher a sock s hold by few managers or s a a wdespread sock n domesc equy funds. A manager ha holds a sock n her porfolo ha no oher managers consdered sugges ha she s dong a specal be on ha sock and he level of aachmen s probably hgher. Our resuls confrm a sgnfcan level of dsposon effecs on hese socks consdered specal bes. Deepenng no hs resul, we observe ha levels of dsposon effec only remnd when he wegh hose socks have over he porfolo s low. Managers do no suffer hs behavoural bas when hey do a specal be ha mples hgher proporons of her porfolos. Fnally, we analyse he fund characerscs ha ncrease he probably of funds o exhb dsposon effec. Funds wh hgher pas performance, wh a small number of socks n he porfolos are more prone o show dsposon effec as well as funds 16

17 wh lower fees. The sze of he fund famly seems o be affecng he propensy o realze losses more readly han gans. Ths fndng s especally neresng n he Spansh equy fund ndusry ha s very concenraed and calls for more research o shed lgh on he fund managemen a famles level. References Baley, Warren, Alok Kumar, and Davd Ng Behavoral bases of muual fund nvesors. Journal of Fnancal Economcs 102, (1): Barber, Brad M., Y-sung Lee, Yu-Jane Lu, and Terrance Odean Is he aggregae nvesor relucan o realse losses? evdence from awan. European Fnancal Managemen 13, (3): Calve, Lauren E., John Y. Campbell, and Paolo Sodn Fgh or flgh? porfolo rebalancng by ndvdual nvesors. Quarerly Journal of Economcs CXXIV, (1): Chen, Gongmeng, Kenneh A. Km, John R. Nofsnger, and Olver M. Ru Tradng performance, dsposon effec, overconfdence, represenaveness bas, and experence of emergng marke nvesors. Journal of Behavoral Decson Makng 20, (4): Choe, Hyuk, and Yunsung Eom The dsposon effec and nvesmen performance n he fuures marke. Journal of Fuures Markes 29, (6): Cc, Gjergj The prevalence of he dsposon effec n muual funds' rades. Journal of Fnancal and Quanave Analyss 47, (4): Coval, Joshua D., and Tyler Shumway Do behavoral bases affec prces? Journal of Fnance 60, (1): Dorn, D., and G. Srobl Raonal Dsposon Effecs: Theory and Evdence, workng paper. Dror, Iel E., Jerome R. Busemeyer, and Beh Basola Decson makng under me pressure: An ndependen es of sequenal samplng models. Memory & Cognon (Pre-2011) 27, (4): Duxbury, Darren, Rober Hudson, Kevn Keasey, Zhshu Yang, and Songyao Yao Do he dsposon and house money effecs coexs? A reconclaon of wo behavoral bases usng ndvdual nvesor-level daa. Journal of Inernaonal Fnancal Markes, Insuons and Money 34, (0): How pror realzed oucomes affec porfolo decsons. Revew of Quanave Fnance and Accounng 41, (4):

18 Elon, E., M. Gruber, C. Blake, Y. Krasny, and S. Ozelge The effec of holdngs daa frequency on conclusons abou muual fund behavor. Journal of Bankng & Fnance 34, (5): Feng, Le, and Mark S. Seasholes Do nvesor sophscaon and radng experence elmnae behavoral bases n fnancal markes? Revew of Fnance 9, (3): Frazzn, Andrea The dsposon effec and underreacon o news. The Journal of Fnance 61, (4): Grnbla, Mark, and Ma Keloharju Wha makes nvesors rade? The Journal of Fnance 56, (2): Kahneman, Danel, and Amos Tversky Prospec heory: An analyss of decson under rsk. Economerca (Pre-1986) 47, (2): Kumar, Alok Hard-o-value socks, behavoral bases, and nformed radng. Journal of Fnancal and Quanave Analyss 44, (6): Leal, Crsana Cerquera, Manuel J. Rocha Armada, and João L. C. Duque Are all ndvdual nvesors equally prone o he dsposon effec all he me? new evdence from a small marke. Froners n Fnance and Economcs 7, (2): Lee, Jen-Sn, P-Hsa Yen, and Kam C. Chan Marke saes and dsposon effec: Evdence from awan muual fund nvesors. Appled Economcs 45, (10): Locke, Peer R., and Seven C. Mann Professonal rader dscplne and rade dsposon. Journal of Fnancal Economcs 76, (2): Odean, Terrance Are nvesors relucan o realze her losses? The Journal of Fnance 53, (5): Orz, Crsna, Glora Ramírez, and Lus Vcene Muual Fund Tradng and Porfolo Dsclosures. Journal Fnancal Servces Research n Press. DOI /s Shapra, Z., and I. Veneza Paerns of behavor of professonally managed and ndependen nvesors. Journal of Bankng and Fnance 25, (8): Shefrn, Hersh, and Mer Saman The dsposon o sell wnners oo early and rde losers oo long: Theory and evdence. The Journal of Fnance 40, (3): Weber, M., and C. F. Camerer The dsposon effec n secures radng: An expermenal analyss. Journal of Economc Behavor and Organzaon 33, (2):

19 Weber, M. and C.F. Welfens The Follow-On Purchase and Repurchase Behavor of Indvdual Invesors: An Expermenal Invesgaon, De Berebswrschaf, 71, Wermers, Russell, 2003, Is money really smar? New evdence on he relaon beween muual fund flows, manager behavor, and performance perssence, Workng paper, Unversy of Maryland. 19