Research Summary
Research Summary
Inheriting Losers (with Li Jin)
Description
New managers who take over mutual fund portfolios, typically
proceed to sell off inherited momentum losers. Relative to
continuing fund managers holding the same stocks, new managers
tend to reduce their holdings of losers at a higher rate than of
winners or stocks in other momentum deciles. This result holds
even for the subset of well-performing funds with positive fund
flows, for which it is unlikely that the new manager was brought
in to change the fund's strategy. We conjecture that continuing
fund managers tend to hold on to losers because of their inability
to ignore the sunk costs associated with the stocks' poor
performance.