A Study on the Recency Effect in Mutual Fund Repurchase Behavior
WU Yanran, QI Lili, LI Zhongtai
Business School, Beijing Normal University; School of Economics and Management,Qinghai Normal University; Postdoctoral Research Station, Hengfeng Bank Co., Ltd.
Summary:
Existing research has primarily focused on the behavioral patterns of stock investors, while studies on mutual fund investors have largely centered on fund managers. Within the limited literature on individual mutual fund investors, most attention has been directed toward the redemption behavior, with relatively little emphasis on buying behavior. A key challenge in this area is the difficulty of defining the set of funds available for potential purchase. This issue can be mitigated by focusing on repurchase behavior, as previously redeemed funds form a naturally observable and well-defined choice set. Although prior studies have explored stock investors' repurchase behavior, notable differences between stock and fund investors—in trading frequency, investment strategies, performance, and disposition effect—necessitate further investigation into whether mutual fund investors exhibit similar behavioral biases. We utilize micro-level data from a major anonymous online mutual fund distribution platform. Our analysis is based on complete transaction and portfolio records from 200,000 individual investors between 2018 and 2019. Using a Logit model, we empirically examine investors' repurchase decisions and assess the influence of the recency effect. Grounded in behavioral finance theory, this paper systematically explores the cognitive mechanisms underlying mutual fund repurchase behavior. Our findings reveal that investors prefer to repurchase funds previously redeemed at a gain compared to other previously redeemed funds. Importantly, the recency effect substantially influences individual investors' repurchase decisions. Specifically, recent transactions involving other funds—whether subscriptions or redemptions—significantly reduce investors' propensity to repurchase previously redeemed funds. Additionally, a higher frequency of recent transactions further decreases the likelihood of repurchasing previously redeemed funds. Finally, the repurchase decisions of experienced investors are less affected by the recency bias. This paper makes several contributions to existing literature. First, our study shifts the focus from the widely studied selling behavior of individual investors to an in-depth analysis of their buying behavior in the mutual fund context, extending the understanding of investor trading activities beyond single-security decisions. Second, we introduce the recency effect—a relatively underexplored cognitive bias—into the study of mutual fund trading behavior. Based on the research of Nofsinger and Varma (2013), this paper further refines the measurement of recency effect from two dimensions of transaction type (subscription and redemption) and transaction frequency, and comprehensively examines its influence on repurchase behavior. Third, unlike prior studies that focus on single-security decisions, we adopt a portfolio-level perspective to examine how transactions in other funds influence repurchase decisions, offering new insights into cross-security behavioral patterns. Based on our findings, we offer three policy recommendations. First, investor education and emotional management programs should be strengthened to reduce irrational behaviors driven by cognitive biases such as the recency effect. Second, fund distribution platforms should enhance their customization and intelligent decision support functions. Fund sales institutions should make use of algorithm recommendation and intelligent reminder functions, based on investors' historical transaction data and investment preferences, to prompt them to pay attention to long-term performance and risk, avoid excessive attention to recent transactions and short-term performance, reduce the negative impact of recency bias, and promote the reasonable allocation of investment portfolio. Third, regulatory authorities should improve investor transaction data infrastructure and promote controlled data sharing. This initiative would support behavioral finance research and evidence-based policymaking, ultimately contributing to the sustainable development of the mutual fund market. Future research can extend this study in several meaningful directions. First, comparing the repurchase behavior of online and offline mutual fund investors could help evaluate the generalizability of the findings. Second, investigating differences in repurchase behavior between passive and active fund investors may clarify how fund type shapes investor decision-making patterns. Third, examining the relationship between repurchase behavior and investment performance can offer insights into the long-term impact of cognitive biases on investor outcomes. These extensions would enhance the theoretical understanding of mutual fund subscription behavior and provide empirical evidence to inform fintech development and policy optimization.
伍燕然, 祁莉莉, 李忠太. 基金再申购行为中的近因效应研究[J]. 金融研究, 2025, 538(4): 189-206.
WU Yanran, QI Lili, LI Zhongtai. A Study on the Recency Effect in Mutual Fund Repurchase Behavior. Journal of Financial Research, 2025, 538(4): 189-206.
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