Reversal of divergent decisions: Wise or hasty decisions?

We examine whether the reversals of buying decisions by fund managers depend on the performance of the stocks; or do they depend on the divergence in the trading decisions of peer managers. Through separate analyses, we find that stock performance positively influences the reversal of trading decisions while the level of divergence has a negative effect. However, when we analyse the joint effect of performance and divergence, we find a more rapid reversal in more divergent decisions that lead to good results. This asymmetric evidence might be linked to the disposition effect and could entail the loss of potential good outcomes. The results indicate that managers who reverse their buying decisions take greater advantage of the potential performance, providing evidence of skill in their selling decisions. Finally, we observe that team structures mitigate the preference of managers to hold on to their special bets. • Performance has a significant positive influence on subsequent reversals, aligning with the disposition effect observed in financial literature. • Divergence has a significant negative influence on subsequent reversals, indicating a tendency to hold onto special bets. • Asymmetric effect when performance and divergence are jointly considered in the sense that those divergent decisions that imply better performance present quick reversal patterns. This evidence makes us wonder if these rapid reversals drive hasty or wise decisions. • Managers' reversal decisions demonstrate their ability to reverse good buying opportunities, leading to wise rather than hasty decisions. • Team management tends to reduce the level of attachment to special investments.