The impact of policy uncertainty on the disposition effect of fund investors

Abstract

The disposal effect is an essential phenomenon in investor behavior. The disposal effect of traditional fund investment is that investors redeem the fund when they make a profit and hold the fund when they lose money. However, the latest research has found that fund investors' behavior is not a simple binary linear relationship. The relationship between investors' buying and selling behavior and the rate of return is not monotonically increasing but shows a V-shaped characteristic; that is, when the investor's profit increases or when the loss increases, it will increase the probability of redemption of the fund. Policy uncertainty refers to the inability of economic agents to predict precisely whether, when, and how the government will change the current economic policy. Many theoretical studies believe that policy uncertainty can affect the macroeconomy, enterprise production and investment, technological innovation and product supply, market interest rates and exchange rates, Etc., causing fluctuations in the capital market, which affect investors' expectations and investment decisions. We obtained the account transaction information of all fund investors of a domestic fund company from the first public fund established by the company in 2015 to 7 funds (12 sub-funds) on December 31, 2020. The statistics found that the sample fund companies have better performance. The performance of blue-chip funds have obtained better absolute and relative returns. Therefore, the research in this paper is very coincidentally limited to the behavior of individual investors of blue-chip funds. We conduct an empirical test on the trading accounts of 299,071 retail fund investors obtained by the sample fund companies, forming 38,408,407 panel observation data composed of investor-fund-day, and find that individual investor of funds has obvious risks when investing in securities and fund products. Disposition effect and V-shaped disposition effect phenomenon. At the same time, it is empirically found that the disposal effect of investors in equity-oriented funds is more potent than that of debt-oriented funds, and the probability of redemption of funds when investors invest in equity-oriented funds is higher than that of debt-oriented funds; The V-shaped disposal effect has a typical characteristic that the slope of profit is more significant than that of the loss, while the V-shaped disposal effect of investors with partial debt funds has the atypical characteristic that the slope of loss is more significant than that of the profit. A new form of disposal effect is found. We use the South China Morning Post-based China Economic Policy Uncertainty Index (EPU) to replace policy uncertainty. Based on this index, we separate the fund sample into high and low policy uncertainty samples and test economic policies through empirical models. The results indicate that policy uncertainty has an important impact on the behavior of individual fund investors, especially the investor's disposal affect and V-shaped disposal effect. Fund investors pay more attention to economic policy rather than profitability when the uncertainty of economic policy tend to be high, and the disposal effect is less obvious; while the economic policy uncertainty is low, the disposal effect and V-shaped disposition effect is more pronounced, and gains have a more significant slope than losses. We add some cross variables of control and core variables into the model, conduct robustness tests on the disposition effect of fund investors and the V-shaped disposition effect, and find the conclusion robust. By changing the Economic Policy Uncertainty Index (EPU), EPU index is used based on the People's Daily and Guangming Daily in the mainland and the EPU index based on the top ten mainland newspapers to regroup the samples to observe the robustness of the conclusions; In addition, we added some crossover variables of control variables and core variables to reconstruct the robustness of the practical conclusions of the model. The test results show that different test methods obtain the same results, and the robustness of the conclusions is good.