The Disposition Effect in Open-end Mutual Fund Market: A Study of Taiwan Equity Funds

This paper uses a unique data set with complete information of purchase and redemptions of individuals and institutions in the Taiwan open-end equity mutual fund market. We employ the recursive ordinary least square model in variable to identify the determinants of purchasing and redemption activities over a 56-month period. Our results show that investors in Taiwan have two types of disposition effect. First, we find that investors are not to redeem the funds with past negative capital return, which we call it "insignificant redemption disposition effect". Second, we find investors are significantly less willing to flee from past extremely negative excess returns, but the unwilling to redeem the funds with moderate negative excess return is not significant. We call that "less willing redemption disposition effect".