Download or read book Does Prospect Theory Explain the Disposition Effect written by Thorsten Hens and published by . This book was released on 2013 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: The disposition effect is the observation that investors hold winning stocks too long and sell losing stocks too early. A standard explanation of the disposition effect refers to prospect theory and in particular to the asymmetric risk aversion according to which investors are risk averse when faced with gains and risk-seeking when faced with losses. We show that for reasonable parameter values the disposition effect can however not be explained by prospect theory as proposed by Kahneman and Tversky. The reason is that those investors who sell winning stocks and hold loosing assets would in the first place not have invested in stocks. That is to say the standard prospect theory argument is sound ex-post, assuming that the investment has taken place, but not ex-ante, requiring that the investment is made in the first place.
Download or read book Does Prospect Theory Explain the Disposition Effect written by Thorsten Hens and published by . This book was released on 2006 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Can Prospect Theory Explain the Disposition Effect A New Perspective on Reference Points written by Juanjuan Meng and published by . This book was released on 2016 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: There is a recent debate on whether prospect theory can explain the disposition effect. Using both theory and simulation, this paper shows that prospect theory often predicts the disposition effect when lagged expected final wealth is the reference point, regardless of whether the reference point is updated or not. When initial wealth is the reference point, however, there is often no disposition effect. Reference point adjustment weakens the disposition effect, leads to more aggressive initial stock purchase strategies and predict history-dependence in stock holding. These findings also provide a explanation for why market experience reduces behavioral biases.
Download or read book Prospect Theory and the Disposition Effect written by Markku Kaustia and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper shows that prospect theory is unlikely to explain the disposition effect. Prospect theory predicts that the propensity to sell a stock declines as its price moves away from the purchase price in either direction. Trading data, on the other hand, show that the propensity to sell jumps at zero return, but it is approximately constant over a wide range of losses, and increasing or constant over a wide range of gains. Further, the pattern of realized returns does not seem to stem from optimal after-tax portfolio rebalancing, a belief in mean-reverting returns, or investors acting on target prices.
Download or read book Prospect Theory written by Daniel Kahneman and published by . This book was released on 1979 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Disposition and Prospect Theory written by Charles Favreau and published by . This book was released on 2016 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: While most researchers agree on the existence of disposition, there still remains question regarding its cause. In this study, I investigate whether prospect theory is a potential cause by observing levels of disposition among insiders relative to information and risk. I find that while disposition increases for more volatile stocks, the increase is due strictly to an increase in the proportion of gains realized, and not in the decrease of the proportion of losses realized as well. This finding is inconsistent with the disjoint utility curve described by prospect theory, which implies risk seeking preferences for losses. Furthermore, I find that disposition doesn't decrease with superior information, a finding also inconsistent with prospect theory. Lastly, I find that disposition does decrease with financial sophistication, and that the belief in mean reversion does appear to contribute to the disposition effect, but not fully explain it.
Download or read book Neuroeconomics written by Paul W. Glimcher and published by Academic Press. This book was released on 2013-08-13 with total page 606 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the years since it first published, Neuroeconomics: Decision Making and the Brain has become the standard reference and textbook in the burgeoning field of neuroeconomics. The second edition, a nearly complete revision of this landmark book, will set a new standard. This new edition features five sections designed to serve as both classroom-friendly introductions to each of the major subareas in neuroeconomics, and as advanced synopses of all that has been accomplished in the last two decades in this rapidly expanding academic discipline. The first of these sections provides useful introductions to the disciplines of microeconomics, the psychology of judgment and decision, computational neuroscience, and anthropology for scholars and students seeking interdisciplinary breadth. The second section provides an overview of how human and animal preferences are represented in the mammalian nervous systems. Chapters on risk, time preferences, social preferences, emotion, pharmacology, and common neural currencies—each written by leading experts—lay out the foundations of neuroeconomic thought. The third section contains both overview and in-depth chapters on the fundamentals of reinforcement learning, value learning, and value representation. The fourth section, “The Neural Mechanisms for Choice, integrates what is known about the decision-making architecture into state-of-the-art models of how we make choices. The final section embeds these mechanisms in a larger social context, showing how these mechanisms function during social decision-making in both humans and animals. The book provides a historically rich exposition in each of its chapters and emphasizes both the accomplishments and the controversies in the field. A clear explanatory style and a single expository voice characterize all chapters, making core issues in economics, psychology, and neuroscience accessible to scholars from all disciplines. The volume is essential reading for anyone interested in neuroeconomics in particular or decision making in general. Editors and contributing authors are among the acknowledged experts and founders in the field, making this the authoritative reference for neuroeconomics Suitable as an advanced undergraduate or graduate textbook as well as a thorough reference for active researchers Introductory chapters on economics, psychology, neuroscience, and anthropology provide students and scholars from any discipline with the keys to understanding this interdisciplinary field Detailed chapters on subjects that include reinforcement learning, risk, inter-temporal choice, drift-diffusion models, game theory, and prospect theory make this an invaluable reference Published in association with the Society for Neuroeconomics—www.neuroeconomics.org Full-color presentation throughout with numerous carefully selected illustrations to highlight key concepts
Download or read book Unraveling the Disposition Effect written by Barbara Summers and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates experimentally the role of emotions in a robust behavioral anomaly, the disposition effect. We manipulate choice and responsibility for subsequent gains and losses, thus influencing the anticipated and experienced emotions at play. Merely experiencing a gain or loss, in the absence of responsibility, is not sufficient to produce a disposition effect, thus supporting recent theoretical claims that prospect theory alone can not explain the disposition effect. Introducing the emotions of rejoicing or regret, via choice and responsibility, is sufficient to produce a disposition effect. We conclude that emotions have an important role to play in economic decisions. PLEASE NOTE: The final outcome of this line of work, with additional studies, is now in-press for OBHDP online.
Download or read book A Behavioral Approach to Asset Pricing written by Hersh Shefrin and published by Elsevier. This book was released on 2008-05-19 with total page 636 pages. Available in PDF, EPUB and Kindle. Book excerpt: Behavioral finance is the study of how psychology affects financial decision making and financial markets. It is increasingly becoming the common way of understanding investor behavior and stock market activity. Incorporating the latest research and theory, Shefrin offers both a strong theory and efficient empirical tools that address derivatives, fixed income securities, mean-variance efficient portfolios, and the market portfolio. The book provides a series of examples to illustrate the theory. The second edition continues the tradition of the first edition by being the one and only book to focus completely on how behavioral finance principles affect asset pricing, now with its theory deepened and enriched by a plethora of research since the first edition
Download or read book Investor Behavior written by H. Kent Baker and published by John Wiley & Sons. This book was released on 2014-02-10 with total page 645 pages. Available in PDF, EPUB and Kindle. Book excerpt: WINNER, Business: Personal Finance/Investing, 2015 USA Best Book Awards FINALIST, Business: Reference, 2015 USA Best Book Awards Investor Behavior provides readers with a comprehensive understanding and the latest research in the area of behavioral finance and investor decision making. Blending contributions from noted academics and experienced practitioners, this 30-chapter book will provide investment professionals with insights on how to understand and manage client behavior; a framework for interpreting financial market activity; and an in-depth understanding of this important new field of investment research. The book should also be of interest to academics, investors, and students. The book will cover the major principles of investor psychology, including heuristics, bounded rationality, regret theory, mental accounting, framing, prospect theory, and loss aversion. Specific sections of the book will delve into the role of personality traits, financial therapy, retirement planning, financial coaching, and emotions in investment decisions. Other topics covered include risk perception and tolerance, asset allocation decisions under inertia and inattention bias; evidenced based financial planning, motivation and satisfaction, behavioral investment management, and neurofinance. Contributions will delve into the behavioral underpinnings of various trading and investment topics including trader psychology, stock momentum, earnings surprises, and anomalies. The final chapters of the book examine new research on socially responsible investing, mutual funds, and real estate investing from a behavioral perspective. Empirical evidence and current literature about each type of investment issue are featured. Cited research studies are presented in a straightforward manner focusing on the comprehension of study findings, rather than on the details of mathematical frameworks.
Download or read book Making Prospect Theory Fit for Finance written by and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Advances in Behavioral Economics written by Colin F. Camerer and published by Princeton University Press. This book was released on 2011-12-12 with total page 769 pages. Available in PDF, EPUB and Kindle. Book excerpt: Twenty years ago, behavioral economics did not exist as a field. Most economists were deeply skeptical--even antagonistic--toward the idea of importing insights from psychology into their field. Today, behavioral economics has become virtually mainstream. It is well represented in prominent journals and top economics departments, and behavioral economists, including several contributors to this volume, have garnered some of the most prestigious awards in the profession. This book assembles the most important papers on behavioral economics published since around 1990. Among the 25 articles are many that update and extend earlier foundational contributions, as well as cutting-edge papers that break new theoretical and empirical ground. Advances in Behavioral Economics will serve as the definitive one-volume resource for those who want to familiarize themselves with the new field or keep up-to-date with the latest developments. It will not only be a core text for students, but will be consulted widely by professional economists, as well as psychologists and social scientists with an interest in how behavioral insights are being applied in economics. The articles, which follow Colin Camerer and George Loewenstein's introduction, are by the editors, George A. Akerlof, Linda Babcock, Shlomo Benartzi, Vincent P. Crawford, Peter Diamond, Ernst Fehr, Robert H. Frank, Shane Frederick, Simon Gächter, David Genesove, Itzhak Gilboa, Uri Gneezy, Robert M. Hutchens, Daniel Kahneman, Jack L. Knetsch, David Laibson, Christopher Mayer, Terrance Odean, Ted O'Donoghue, Aldo Rustichini, David Schmeidler, Klaus M. Schmidt, Eldar Shafir, Hersh M. Shefrin, Chris Starmer, Richard H. Thaler, Amos Tversky, and Janet L. Yellen.
Download or read book What Drives the Disposition Effect written by Nicholas Barberis and published by . This book was released on 2006 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: One of the most striking portfolio puzzles is the "disposition effect": the tendency of individuals to sell stocks in their portfolios that have risen in value since purchase, rather than fallen in value. Perhaps the most prominent explanation for this puzzle is based on prospect theory. Despite its prominence, this explanation has received little formal scrutiny. We take up this task, and analyze the trading behavior of investors with prospect theory preferences. We find that, at least for the simplest implementation of prospect theory, the link between these preferences and the disposition effect is not as obvious as previously thought: in some cases, prospect theory does indeed predict a disposition effect, but in others, it predicts the opposite. We provide intuition for these results, and identify the conditions under which the disposition effect holds or fails. We also discuss the implications of our results for other disposition-type effects that have been documented in settings such as the housing market, futures trading, and executive stock options.
Download or read book Behavioral Corporate Finance written by Hersh Shefrin and published by College Ie Overruns. This book was released on 2017-04-16 with total page 300 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Behavioral Finance written by H. Kent Baker and published by John Wiley & Sons. This book was released on 2010-10-01 with total page 1184 pages. Available in PDF, EPUB and Kindle. Book excerpt: A definitive guide to the growing field of behavioral finance This reliable resource provides a comprehensive view of behavioral finance and its psychological foundations, as well as its applications to finance. Comprising contributed chapters written by distinguished authors from some of the most influential firms and universities in the world, Behavioral Finance provides a synthesis of the most essential elements of this discipline, including psychological concepts and behavioral biases, the behavioral aspects of asset pricing, asset allocation, and market prices, as well as investor behavior, corporate managerial behavior, and social influences. Uses a structured approach to put behavioral finance in perspective Relies on recent research findings to provide guidance through the maze of theories and concepts Discusses the impact of sub-optimal financial decisions on the efficiency of capital markets, personal wealth, and the performance of corporations Behavioral finance has quickly become part of mainstream finance. If you need to gain a better understanding of this topic, look no further than this book.
Download or read book The Financial Consequences of Behavioural Biases written by Imad A. Moosa and published by Springer. This book was released on 2017-10-25 with total page 184 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a concise analysis of behavioural biases and their implications for financial decision making. The book is written in the normative tradition, arguing strongly for the superiority of behavioural finance with respect to explaining observed phenomena in financial markets. It offers some unique features, including a discussion of the issue of conspiracy theory and how behavioural biases lead to belief in conspiracy theories. Lingering belief in the principles of neoclassical finance is attributed in part to the doctrine of publish or perish, which dominates contemporary academia. The offshoots of behavioural finance are discussed in detail, including ecological finance, environmental finance, social finance, experimental finance, neurofinance, and emotional finance. A comprehensive discussion of narcissism is presented where it is demonstrated that narcissistic behaviour is prevalent in the finance industry and that it led to the eruption of the global financial crisis.
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.
