Disposition Effects of Korean Equity Fund Investors

Ko, Kwang Soo; Ha, Yeon Jeong

Korean Journal of Financial Studies 2010;39(4):517-543.
Published online December 31, 2010.

Kwang Soo Ko, Yeon Jeong Ha

주식형 펀드 투자자의 디스포지션 효과

고광수, 하연정

Abstract

This study examines the so-called disposition effect in Korean equity funds. The disposition effect, based on Kahneman and Tversky(1979)`s prospect theory, is the tendency of fund investors to hold poorly performing funds and to redeem better performing funds. To test the effect using net cash flows of each individual fund, we propose ``within-fund rank`` as a new performance measure. The purpose of this study is to verify the (disposition) effect of cash outflows after controlling for the effect of cash inflows related to across-fund rank. We also consider the structural changes in the Korean fund market, and start-up and survivorship biases for testing disposition effect. The results are as follows: First, while better across-fund rank induces more net cash flows, within-fund rank and net cash flows are negatively related. So, we conclude that the disposition effect is indeed present in Korean equity funds. Second, we find that the structural changes in the Korean fund market affect fund investment decision. Third, we show that the start-up fund bias for testing disposition effect. We conclude that within-fund rank proposed by this study is one of the determinants of fund redemption decision.

Key Words: 구조적 변화,디스포지션 효과,펀드 간 성과,펀드 내 성과,프로스펙트 이론,Across-Fund Rank,Disposition Effect,Prospect Theory,Structural Changes,Within-Fund Rank