The Prevalence of the Disposition Effect inMutual Funds' Trades

US equity mutual funds, on average, prefer realization of capital losses to capital gains. Nevertheless,a substantial fraction exhibits the disposition effect of realizing gains more readily than losses. Myanalysis suggests that learning effects have reduced the manifestation of the disposition effect overtime, implying that academic research has influenced industry practices. When funds experienceoutflows and are managed by teams of portfolio managers they are more susceptible to sellingdisproportionately more winners than losers. Disposition-driven behavior affects investment style,causing lower market betas and characteristics of value-oriented and contrarian styles but has noobservable effect on fund performance.