I-Shou University, Draft The Disposition Effect of Taiwanese Open-end Mutual Fund Investors: Recursive Threshold Model in Variable

A unique data set with complete information of purchase and redemptions of individuals and institutions in the Taiwan open-end equity mutual fund market. With the monthly data, we employ the recursive ordinary least square model in variable to identify the determinants of purchasing and redemption activities over a 56-month period. In this study, two models with different assumption about investors ’ behavior are discussed. The first model incorporates the assumption that investors choose funds on the basis of past capital returns. In the second model, we assume investors choose funds according to the excess return of each fund. Our results show that investors in Taiwan have two types of disposition effect. For all disposition effect types, we find investors flock to recent high performing funds but their behavior is different in loss domain. First, we find that investors are not to redeem the funds with past negative capital return, we call that “insignificant redemption disposition effect”. Second, we find investors are significantly less willing to flee from past extremely negative excess return but the unwilling to redeem the funds with moderate negative excess return i