Download or read book Are All Individual Investors Equally Prone to the Disposition Effect All the Time New Evidences from a Small Market written by Cristiana Cerqueira Leal and published by . This book was released on 2020 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the disposition effect on the Portuguese stock market, on the basis of a unique database that consists of trading records of 1496 individual investors. We found strong evidence of the disposition effect, studied on the basis of trades, volume and value traded. This preference for realizing gains to losses was observed every month of the year and for all individual investors. Even in the end of the fiscal year, the disposition effect still holds (in spite of the existence of fiscal incentives for the so-called fiscal effect), as opposed to the evidence found in other markets. We also studied the disposition effect related to market tendency. By partitioning the data period in a bull and a bear period, we found evidence of disposition effect for both periods, but with differences in terms of its intensity. In bull market periods, the disposition effect is even more evident than in bear markets. These results, we believe, can strongly be explained with behavioral reasons. We also investigated the disposition effect related to investors' sophistication. We partitioned investors, classifying sophisticated investors as the ones that trade more frequently, have a higher volume of transactions and a higher portfolio value and found evidence that more sophisticated investors are less prone to the disposition effect than less sophisticated ones, even though both groups exhibit evidence of this effect.
Download or read book Disposition Effect and Firm Size written by Elena Ranguelova and published by . This book was released on 2008 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economists and investment professionals have long been puzzled by the tendency of individual investors to sell the winners from their stock portfolio and to hold on to the losers. I analyze the daily trading records of 78,000 clients of a discount brokerage house over six years and document, surprisingly, that such behavior (known as the disposition effect) is concentrated primarily in large-cap stocks. Trades in stocks at the bottom 40 percent of the market capitalization distribution exhibit a reverse disposition effect: investors keep their winners and realize their losers. Moreover, the relationship between firm size and the disposition effect appears to be monotonic. The larger the market capitalization of the firm, the more likely people are to realize their gain and to hold on to their loss. This new evidence challenges the current view of the literature that the disposition effect is an implication of a prospect-theory type of individual preferences.I examine different potential explanations for the size dependence of the disposition effect, such as margin calls being triggered more often by the more volatile small stocks, different trading styles in small stocks and large stocks and different behavior with regard to small and large gains and losses. My findings are consistent with a view that individual beliefs rather than preferences are generating the disposition effect.
Download or read book Finance for Normal People written by Meir Statman and published by Oxford University Press. This book was released on 2017-04-03 with total page 489 pages. Available in PDF, EPUB and Kindle. Book excerpt: Finance for Normal People teaches behavioral finance to people like you and me - normal people, neither rational nor irrational. We are consumers, savers, investors, and managers - corporate managers, money managers, financial advisers, and all other financial professionals. The book guides us to know our wants-including hope for riches, protection from poverty, caring for family, sincere social responsibility and high social status. It teaches financial facts and human behavior, including making cognitive and emotional shortcuts and avoiding cognitive and emotional errors such as overconfidence, hindsight, exaggerated fear, and unrealistic hope. And it guides us to banish ignorance, gain knowledge, and increase the ratio of smart to foolish behavior on our way to what we want. These lessons of behavioral finance draw on what we know about us-normal people-including our wants, cognition, and emotions. And they draw on the roles of these factors in saving and spending, portfolio construction, returns we can expect from our investments, and whether we can hope to beat the market. Meir Statman, a founder of behavioral finance, draws on his extensive research and the research of many others to build a unified structure of behavioral finance. Its foundation blocks include normal behavior, behavioral portfolio theory, behavioral life-cycle theory, behavioral asset pricing theory, and behavioral market efficiency.
Download or read book Developments in Mean Variance Efficient Portfolio Selection written by M. Agarwal and published by Springer. This book was released on 2015-12-11 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book discusses new determinants for optimal portfolio selection. It reviews the existing modelling framework and creates mean-variance efficient portfolios from the securities companies on the National Stock Exchange. Comparisons enable researchers to rank them in terms of their effectiveness in the present day Indian securities market.
Download or read book Complex Systems Multi Sided Incentives and Risk Perception in Companies written by Michael I.C. Nwogugu and published by Springer Nature. This book was released on 2019-09-06 with total page 849 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most research about financial stability and sustainable growth focuses on the financial sector and macroeconomics and neglects the real sector, microeconomics and psychology issues. Real-sector and financial-sectors linkages are increasing and are a foundation of economic/social/environmental/urban sustainability, given financial crises, noise, internet, “transition economics”, disintermediation, demographics and inequality around the world. Within complex systems theory framework, this book analyses some multi-sided mechanisms and risk-perception that can have symbiotic relationships with financial stability, systemic risk and/or sustainable growth. Within the context of Regret Minimization, MN-Transferable Utility and WTAL, new theories-of-the-firm are developed that consider sustainable growth, price stability, globalization, financial stability and birth-to-death evolutions of firms. This book introduces new behaviour theories pertaining to real estate and intangibles, which can affect the evolutions of risk-taking and risk perception within organizations and investment entities. The chapters address elements of the dilemma of often divergent risk perceptions of, and risk-taking by corporate executives, regulators and investment managers.
Download or read book Portfolio Selection Using Multi Objective Optimisation written by Saurabh Agarwal and published by Springer. This book was released on 2017-08-21 with total page 240 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book explores the risk-return paradox in portfolio selection by incorporating multi-objective criteria. Empirical research is presented on the development of alternate portfolio models and their relative performance in the risk/return framework to provide solutions to multi-objective optimization. Next to outlining techniques for undertaking individual investor’s profiling and portfolio programming, it also offers a new and practical approach for multi-objective portfolio optimization. This book will be of interest to Foreign Institutional Investors (FIIs), Mutual Funds, investors, and researchers and students in the field.
Download or read book Advances in Pacific Basin Business Economics and Finance written by Cheng-Few Lee and published by Emerald Group Publishing. This book was released on 2023-05-01 with total page 313 pages. Available in PDF, EPUB and Kindle. Book excerpt: Advances in Pacific Basin Business, Economics and Finance (APBBEF) is an annual series designed to focus on interdisciplinary research in finance, economics, and management among Pacific Rim countries.
Download or read book Market Phenomena Investors and the Disposition Effect written by Julian Fischer and published by GRIN Verlag. This book was released on 2017-02-06 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2017 in the subject Sociology - Economy and Industry, grade: 1,3, University of Göttingen (Behavioral Finance), course: Bachelorseminar for Behavioral Economics, language: English, abstract: This paper discusses aspects of disposition effects in several ways and perspectives. There is evidence, that investors sell winners earlier and hold losers longer. Theories from mental accounting, prospect theory, self-control, decision dependent emotions, internal locus of control, and many more relate to the disposition effect. After discussing them shortly, we investigate experiments in the laboratory and empirical evidence to come to the conclusion, that disposition effects exist for single investors and more pronounced for team investors. Tax considerations, automatic selling and decision dependent emotions change the proportion of how much investors are prone to disposition effects. The following mindmap shows an impression of the most important connections between the different effects.
Download or read book Advances in Entrepreneurial Finance written by Rassoul Yazdipour and published by Springer Science & Business Media. This book was released on 2010-12-17 with total page 255 pages. Available in PDF, EPUB and Kindle. Book excerpt: Advances in Entrepreneurial Finance brings together contributions from researchers from the fields of entrepreneurship, behavioral finance, psychology, and neuroscience to shed new light on the dynamics of decision making and risk taking by entrepreneurs and venture capitalists (VCs). Every new venture requires access to capital at competitive interest rates, and much has been written on general entrepreneurship by management scholars and financial contracting by financial economists using traditional finance theory with all its highly restrictive assumptions regarding decision makers’ cognitive capabilities and behavior. But recent developments in behavioral finance can now be applied to understand how entrepreneurs and VCs perceive risk and uncertainty and how they decide and act accordingly. Showcasing the latest research, this volume demonstrates that findings from the behavioral and neuroscience arenas can and do explain decision making by entrepreneurs and venture investors in the real world. Consequently, such findings have practical implications not only for entrepreneurs, venture capitalists, and their advisors, but also all government agencies and NGOs that want to support product and technological innovation, capital formation, job creation, and economic development.
Download or read book A Detailed Investigation of the Disposition Effect and Individual Trading Behavior written by Ingmar Nolte and published by . This book was released on 2011 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses a panel survival approach to analyze the trading behavior of foreign exchange traders. We concentrate on a detailed characterization of the shape of the disposition effect over the entire profit and loss regions. In doing so, we investigate the influence of a number of trading characteristics on the impact of the disposition effect. These trading characteristics include: special limit order strategies, trading success, size and the experience of our investors.Our main findings are that i) the disposition effect has a non-linear shape. For small profits and losses we find an inverted disposition effect while for larger ones the usual positive disposition effect emerges. ii) The inverted disposition effect is driven to a great extend by patient and cautious investors closing their positions with special limit orders (take-profit and stop-loss). The normal positive disposition effect is found to be intensified for impatient investors closing their positions actively with market orders. iii) We show that unsuccessful investors reveal a stronger inverse disposition effect. iv) Evidence that bigger investors are less prone to the disposition effect than smaller investors is also found.
Download or read book Up Close and Personal written by Ravi Dhar and published by . This book was released on 2009 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we analyze the trading records of a major discount brokerage house to investigate the disposition effect, the tendency to sell winners too quickly than losers. In contrast to previous research that has demonstrated the disposition effect by aggregating across investors (Odean, 1998), our main objective is to identify individual differences in the disposition bias and explain this in terms of underlying investor characteristics. Building on the findings in experimental economics and self-correction in psychology, we hypothesize that investors' sophistication about financial markets and trading experience is responsible in part for the variation in individual disposition effect. Using demographic and socio-economic data as proxies for investors' sophistication, we find empirical evidence that wealthier and individual investors in professional occupations exhibit less disposition effect. Consistent with experimental economics, trading experience also tends to reduce the disposition effect. We provide guidelines for investment advisors, regulators and investment communities to utilize our findings and help investors make better decisions.
Download or read book The Disposition Effect written by Alexander de Groot and published by . This book was released on 2017 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: Evidence of the disposition effect, selling winning stocks too early and keeping losing stocks too long, has been found for all type of investors, from pure private investors (Odean, 1998), to those receiving investment advice (Shapira & Venezia, 2001), institutional investors (Grinblatt & Keloharju, 2001), mutual funds (Cici, 2012) and professional traders (Locke & Mann, 2005). Most of these studies, however, have been done for short data periods, on different datasets and in markets where capital gains taxes are causing tax-induced selling. This study will examine the disposition effect on a long dataset (2001 until 2014) in Belgium, a country where all capital gains are tax-free and capital losses not tax deductible. The disposition effect will be compared among four different investor categories: private individuals not receiving professional investment advice, those who do receive advice, private individuals under discretionary management and institutional investors. Furthermore will be tested whether small private investors show the same disposition effect as large private investors, whether the disposition effect is the same for stocks with the smallest market capitalizations and the largest ones. Finally, the disposition effect of the four investor types will be compared in bull and bear markets separately. This study will contribute to the existing literature for several reasons, namely (a) the database is over a very long period with real transactional data instead of merely holding data (Frazzini, 2006; Hur et al., 2010; Cici, 2012); (b) only one other study so far (Firth, 2015) has studied the disposition effect in a tax neutral environment but only for private individuals; (c) the disposition effect will be tested before and after dividends; (d) 4 different investor categories in the same country will be studied at the same time: private individuals without investment advice, private individuals under discretionary management, private individuals with investment advice and institutional investors (mostly mutual funds); (e) the investor group private individuals under discretionary management has so far never been studied as a separate group.
Download or read book The Disposition Effect in Boom and Bust Markets written by Sabine Bernard and published by . This book was released on 2018 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: The disposition effect is one of the most explored biases in behavioral finance, yet most papers investigating the disposition effect use data that only cover boom periods and assume that the disposition effect is constant over time. We use individual investor trading data that comprise several boom and bust periods (2001-2015) and show that the disposition effect is not constant over time. Instead, the disposition effect moves countercyclical with the market, i.e., is elevated in bust periods and reduced in boom periods. We find that this phenomenon is mainly driven by the amplified frequency of gain realizations in bust periods. Investors are, in relative terms, 25 percent more likely to realize winner assets in bust than in boom periods. Our study encourages further investigations into the effect of macroeconomic cycles on investors' trading behavior.
Download or read book Efficiency and Anomalies in Stock Markets written by Wing-Keung Wong and published by Mdpi AG. This book was released on 2022-02-17 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Efficient Market Hypothesis believes that it is impossible for an investor to outperform the market because all available information is already built into stock prices. However, some anomalies could persist in stock markets while some other anomalies could appear, disappear and re-appear again without any warning. A Special Issue on "Efficiency and Anomalies in Stock Markets" will be devoted to advancements in the theoretical development of market efficiency and anomaly in the Stock Market, as well as applications in Stock Market efficiency and anomalies.
Download or read book Coexistence of Disposition Investors and Momentum Traders in Stock Markets written by Andreas Oehler and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research documents that many investors disproportionately hold on to losing stocks while selling stocks which have gained in value. This systematic behavior is labeled the quot;disposition effectquot;. The phenomenon can be explained by prospect theory's idea that subjects value gains and losses relative to a reference point like the purchase price, and that they are risk-seeking in the domain of possible losses and risk-averse when a certain gain is obtainable. Our experiments were designed to test whether individual-level disposition effects attenuate or survive in a dynamic market setting. We analyze a series of 36 stock markets with 490 subjects. The majority of our investors demonstrate a strong preference for realizing winners (paper gains) rather than losers (paper losses). We adopt different reference points and compare the behavioral patterns across three main trading mechanisms, i.e. rules of price formation. The disposition effect is greatly reduced only within high pressure mechanisms like a dealer market when the last price is assumed as a reference point which is a more market driven (external) benchmark. If disposition investors use the purchase price as a reference point which is a more mental-accounting driven (internal) benchmark they die hard in all market settings. Interestingly, our markets do not collapse or become illiquid by disposition investors' reluctance to trade. A main reason for this is the coexistence of two or more groups of investors, e.g. momentum traders and disposition investors.
Download or read book Handbook of the Economics of Finance written by G. Constantinides and published by Elsevier. This book was released on 2003-11-04 with total page 698 pages. Available in PDF, EPUB and Kindle. Book excerpt: Arbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.
Download or read book Disposition Matters written by Massimo Massa and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we estimate the behavioral component of the Grinblatt and Han (2002) model and derive several testable implications about the expected relationship between the preponderance of disposition - prone investors in a market and volume, volatility and stock returns. To do this, we use a large sample of individual accounts over a six-year period in the 1990's in order to identify investors who are subject to the disposition effect. We then use their trading behavior to construct behavioral factors. We show that when the fraction of quot;irrationalquot; investor purchases in a stock increases, the unexplained portion of the market price of the stock decreases. We further show that statistical exposure to a disposition factor explains cross-sectional differences in daily returns, controlling for a host of other factors and characteristics. The evidence is consistent with the hypothesis that trade between disposition-prone investors and their counter-parties impact relative prices.
