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 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 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 Economic and Statistical Significance of Disposition Effect and Momentum in the US Stock Market written by Jungha Woo and published by . This book was released on 2014 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Disposition effect is the tendency of investors to ride losses and lock in gains. Capital gains overhang is a quantity used in prior literature to construct hypothesis tests for the existence of the disposition effect using publicly available stock market data. This quantity estimates the difference between the current price of a stock and the average price at which the currently held shares of the stock have been purchased by their current owners. Momentum effect is the tendency of the recent price trends to persist. We construct a number of trading strategies based on the capital gains overhang and momentum. We use the US stock market data to show that these strategies were consistently profitable during 1980-2013, and negatively correlated with the market. These conclusions hold even after eliminating small-cap and small-price stocks that may be difficult to trade, and after introducing a realistic trading cost for every transaction. We find a high empirical correlation between the strategies based on momentum and on the capital gains overhang, and argue that the former may be preferable for practitioners because of better performance and simpler implementation. These results also suggest that, rather than measuring the disposition effect, the capital gains overhang may simply be a proxy for momentum. Our findings would be of interest to portfolio managers, quantitative traders, researchers who analyze financial signals, as well as ordinary investors seeking to avoid common investor biases.
Download or read book The Disposition Effect and Momentum written by Mark Grinblatt and published by . This book was released on 2002 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior experimental and empirical research documents that many investors have a lower propensity to sell those stocks on which they have a capital loss. This behavioral phenomenon, known as 'the disposition effect, ' has implications for equilibrium prices. We investigate the temporal pattern of stock prices in an equilibrium that aggregates the demand functions of both rational and disposition investors. The disposition effect creates a spread between a stock's fundamental value -- the stock price that would exist in the absence of a disposition effect -- and its market price. Even when a stock's fundamental value follows a random walk, and thus is unpredictable, its equilibrium price will tend to underreact to information. Spread convergence, arising from the random evolution of fundamental values, generates predictable equilibrium prices. This convergence implies that stocks with large past price runups and stocks on which most investors experienced capital gains have higher expected returns that those that have experienced large declines and capital losses. The profitability of a momentum strategy, which makes use of this spread, depends on the path of past stock prices. Crosssectional empirical tests of the model find that stocks with large aggregate unrealized capital gains tend to have higher expected returns than stocks with large aggregate unrealized capital losses and that this capital gains 'overhang' appears to be the key variable that generates the profitability of a momentum strategy. When this capital gains variable is used as a regressor along with past returns and volume to predict future returns, the momentum effect disappears
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 Market Momentum written by Stephen Satchell and published by John Wiley & Sons. This book was released on 2020-12-02 with total page 448 pages. Available in PDF, EPUB and Kindle. Book excerpt: A one-of-a-kind reference guide covering the behavioral and statistical explanations for market momentum and the implementation of momentum trading strategies Market Momentum: Theory and Practice is a thorough, how-to reference guide for a full range of financial professionals and students. It examines the behavioral and statistical causes of market momentum while also exploring the practical side of implementing related strategies. The phenomenon of momentum in finance occurs when past high returns are followed by subsequent high returns, and past low returns are followed by subsequent low returns. Market Momentum provides a detailed introduction to the financial topic, while examining existing literature. Recent academic and practitioner research is included, offering a more up-to-date perspective. What type of book is Market Momentum and how does it serve a range of readers’ interests and needs? A holistic market momentum guide for industry professionals, asset managers, risk managers, firm managers, plus hedge fund and commodity trading advisors Advanced text to help graduate students in finance, economics, and mathematics further develop their funds management skills Useful resource for financial practitioners who want to implement momentum trading strategies Reference book providing behavioral and statistical explanations for market momentum Due to claims that the phenomenon of momentum goes against the Efficient Markets Hypothesis, behavioral economists have studied the topic in-depth. However, many books published on the subject are written to provide advice on how to make money. In contrast, Market Momentum offers a comprehensive approach to the topic, which makes it a valuable resource for both investment professionals and higher-level finance students. The contributors address momentum theory and practice, while also offering trading strategies that practitioners can study.
Download or read book How the Disposition Effect and Momentum Impact Investment Professionals written by Hersh Shefrin and published by . This book was released on 2015 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: More than twenty years ago, Meir Statman and I coined the term disposition effect to describe the predisposition of investors to sell their winners too early and to ride their losers too long. We identified a series of psychological phenomena that we believed explained the disposition effect, presented data consistent with the effect, and proposed some testable hypotheses. Since that time, a literature on the disposition effect has developed to test those hypotheses and extend the focus of discussion from investor behavior to pricing. In this article, I survey highlights of the disposition effect literature that are of special interest to investment professionals. Recent research concludes that the disposition effect impacts investment professionals, both directly and indirectly. The direct effect involves investment professionals tending to sell their winners too quickly and/or riding their losers too long. The indirect effect involves momentum in pricing that in part stems from some investors behaving in accordance with the disposition effect. Notably, the disposition effect and momentum are key determinants in the separation of outperforming investors from underperforming investors.
Download or read book Dying Out Dying Hard written by Klaus Heilmann and published by . This book was released on 2002 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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 The Disposition Effect in Team Investment Decisions written by Holger Andreas Rau and published by . This book was released on 2015 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper experimentally studies the disposition effects of teams and individuals. The disposition effect describes the phenomenon that investors are reluctant to realize losses, whereas winners are sold too early. Our experiments compare the investments of two-person teams to a setting where investors trade alone. We find that subjects investing jointly exhibit more pronounced disposition effects than individuals. A closer look reveals that investor teams hardly realize losses and predominately sell winners. The data suggest that decision-dependent emotions may explain the differences. That is, teams reporting high levels of regret exhibit significantly higher disposition effects than individuals.
Download or read book Proximity Bias in Investors Portfolio Choice written by Ted Lindblom and published by Springer. This book was released on 2017-08-06 with total page 290 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book helps readers understand the widely documented distortion in the portfolio choice of individual investors toward proximate firms – the proximity bias phenomenon. First, it recapitulates the fundamentals of modern portfolio theory. It then goes on to describe and demonstrate different approaches on how to measure proximity bias and identifies and examines potential motives and reasons for such a bias. In addition, the book presents new analysis on the financial effects of individual investors’ proximity bias, explaining and contributing with possible policy implications on their portfolio distortion. This book will be of interest to students and researchers, as well as decision-makers in business firms and households.
Download or read book A Review of the Disposition Effect in the Stock Market written by Enrique Herscovits and published by . This book was released on 2002 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book What causes Momentum Returns Evidence from different Asset Classes written by Fabian Hertel and published by GRIN Verlag. This book was released on 2022-03-21 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2021 in the subject Business economics - Investment and Finance, grade: 2,0, University of Münster, language: English, abstract: This paper discusses possible asset-specific and cross-asset explanation approaches for momentum appearance. The two main threads in literature, stock momentum and momentum of other assets, are discussed separately and subsequently checked for overlaps. The paper also deals with the definition of momentum as an anomaly itself in context of rational and behavioral concepts. It uncovers selected contrary observations and outlines possible conformities. Capital market anomalies are a phenomenon triggering ongoing debates about the trading behavior of investors on financial markets. They are contradicting the core ideas of the efficient market hypothesis (EMH), which considers financial markets efficient and investors rational and fully informed. One of the EMH key hypotheses, especially supported by Fama and by Samuelson, is the principle of random walk. If this principle holds, the prices of assets on financial markets are only influenced by public and firm-specific news, develop apart from that completely random and are not predictable. However, empirical observations question the random walk principle. They tend to indicate specific patterns in asset price developments instead of complete randomness. Doubts on the EMH and the random walk principle thus cannot be neglected. A common answer to these observations is the existence of additional risk factors which are currently not covered by the applied pricing models. Current asset pricing models mainly rely on Markowitz (1952) and the modern portfolio theory as well as on the Capital Asset Pricing Model (CAPM) from Sharpe (1964), Lintner (1965), and Mossin (1966). These models are rather a benchmark for asset pricing than perfect constructions covering all and any existing risk factors which are relevant for an assets price formation.
Download or read book An Experimental Study on Disposition Effect written by Tastaftiyan Risfandy and published by . This book was released on 2014 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: Disposition effect is one phenomenon in behavioral finance that describes investor tendency to sell winner stocks too early and hold loser stocks too long. The purpose of this paper is to examine the disposition effect from investor perspective when they respond to short-run and long-run return in their stocks. Disposition effect will also be associated with momentum trading, contrarian trading, and investor holding time of the stocks. Using experimental research, we find that psychological biases as regret aversion and loss aversion can explain disposition effect. It is demonstrated by investors who behave as momentum trading when respond to short-run return and become contrarian trader when they react to long-run return. This existence of disposition effect is also supported by another experiment session showing that there is a holding time discrepancy between winner and loser asset owned by investor.
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 Disposition Matters Volume Volatility and Price Impact of Behavioural Bias written by William N. Goetzmann and published by . This book was released on 2004 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
