Are professional fund managers less likely to sell winners? Evaluating how attention allocation impacts behavioural biases

Abstract

Using monthly fund-level portfolio holdings data on Indian equity mutual funds, we explore the predictable patterns in the trading biases of fund managers induced by changing attention allocation patterns. In an emerging market setting, we investigate the tendency of fund managers to sell winners and increase their exposure to losing stocks. Their biases are examined during two states of economic cycles. We adjust for random choice probability while selecting funds for reasons unrelated to the disposition effect. Our research contributes to the relatively nascent psychology-based asset pricing literature by examining fund managers’ psychology concerning financial decision-making.