Can Momentum Be Explained by Fund Flows or Disposition Effect? The Impact of Behavioral Biases and Capital Flows in Brazilian Market Movements

Momentum is one of the most robust anomalies in financial markets, there are two main recent explanations for this phenomenon, a behavioral-based explanation through disposition-effect (i.e., willingness to sell “winners” too quickly and hold “losers” long time) fund-flow based explanation. The centered convergence spread between fundamental value observed market price (disposition-effect causes an underreaction news that generates spread), fund flows-based due persistence performance mutual-funds (which usually keep buying winning positions selling losses). This paper compares those theories using Brazilian data suitable strong presence momentum). empirical analysis was done Fama-MacBeth regressions with results pointing as significant, robustness contributing positively findings.