Do mutual fund flows drive the disposition behaviour of fund managers?

Abstract

This study examines the relationship between fund flows and the disposition behaviour of fund managers. During our sample period of 1996–2014, we find that the disposition biases of fund managers are significantly and negatively correlated with unexpected fund flows but insignificantly correlated with expected fund flows. Additionally, funds embedded with a higher capital gains tax overhang tend to have managers with lower disposition biases. Further evidence shows that fund performance is influenced more by the flow-induced than the non-flow-induced disposition behaviour of fund managers.