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Author : Andrea Frazzini
Publisher :
ISBN 13 :
Total Pages : 151 pages
Book Rating : 4.:/5 (254 download)
Download or read book The Disposition Effect, Momentum and Stock Price Under-reaction to Corporate News written by Andrea Frazzini and published by . This book was released on 2005 with total page 151 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Mark Grinblatt
Publisher :
ISBN 13 :
Total Pages : 43 pages
Book Rating : 4.:/5 (248 download)
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
Author : Andrea Frazzini
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book The Disposition Effect and Under-Reaction to News written by Andrea Frazzini and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper tests whether the tendency of investors to sell stocks in their portfolios that have gone up, not down, in value since purchase, known as the disposition effect, induce under-reaction to news, leading to return predictability and a post-announcement price drift. The disposition effect implies that stock prices under-react to bad news when more current holders are facing a capital loss, and under-react to good news when more current holders are facing a capital gain. I use a database of mutual funds holdings to construct a measure of reference prices for individual stocks. Using this new measure of capital gains, I show that post-event predictability is most severe where the disposition effect predicts the biggest under-reaction. Post-event drift is larger when the news and the capital gains overhang have the same sign, and the magnitude of the drift is directly related to the amount of unrealized capital gains (losses) experienced by the stock holders, prior to the event date. An event-driven equity strategy based on this effect yields monthly alphas of over 200 basis points.
Author : Thanh Huynh
Publisher :
ISBN 13 :
Total Pages : 58 pages
Book Rating : 4.:/5 (13 download)
Download or read book Stock Price Reaction to News written by Thanh Huynh and published by . This book was released on 2016 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study finds that market's underreaction to good news is a driver of Gutierrez and Kelly's (2008) weekly momentum returns. By employing a dataset of 10.1 million news items in four regions (the U.S., Europe, Japan, and Asia Pacific), we find that stocks having important and positive news exhibit stronger return continuation. Our findings suggest that investors in international markets have similar underreaction to the same news characteristics.
Author : Jungha Woo
Publisher :
ISBN 13 :
Total Pages : 28 pages
Book Rating : 4.:/5 (13 download)
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.
Author : Fabian Hertel
Publisher : GRIN Verlag
ISBN 13 : 3346608794
Total Pages : 30 pages
Book Rating : 4.3/5 (466 download)
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.
Author : John O'Brien
Publisher :
ISBN 13 :
Total Pages : 21 pages
Book Rating : 4.:/5 (13 download)
Download or read book Momentum, the Disposition Effect and Beta written by John O'Brien and published by . This book was released on 2018 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: The existence of a premium to momentum portfolios, formed by buying recent winners and selling recent losers is widely accepted, although the source of the returns remains controversial. It remains a focus of behavioural finance. We focus on one set of explanations, based on prospect theory, specifically the disposition effect. This paper develops a model of stock price movement based on our interpretation of the disposition effect and demonstrates how momentum is generated under this model.Analysis of the models predicts a number of relationships not previously reported, including a negative relationship between momentum returns and the market and a temporary reduction in market beta for positive momentum equities. We provide empirical evidence of these relationships in market data, consistent with the hypothesis that the disposition effect is influences investor behaviour.
Author : Min Ki Kim
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)
Download or read book V-Shaped Disposition Effect, Stock Prices, and Post-Earnings-Announcement Drift written by Min Ki Kim and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We attempt to explain post-earnings announcement drift using the newly documented refinement of the disposition effect, which is the V-shaped net selling propensity (VNSP). Using a novel data set containing stock-level information on the trading activities of different types of investors, we find that both large unrealized capital gains and losses positively predict subsequent stock returns in Korean stock markets. Furthermore, investors' net selling propensity affects investor underreaction to earnings news. Among good news stocks, post-announcement drift is more pronounced when they suffer from stockholders' higher net selling propensity. Specifically, these empirical results hold only when we construct a VNSP based on individual trading activity, which is more prone to behaivoral biases. Interestingly, the classic disposition effect does not induce underreaction to earnings news in our data set.
Author : Andreas Oehler
Publisher :
ISBN 13 :
Total Pages : 29 pages
Book Rating : 4.:/5 (129 download)
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 2003 with total page 29 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.
Author : Günter Strobl
Publisher :
ISBN 13 :
Total Pages : 46 pages
Book Rating : 4.:/5 (129 download)
Download or read book Information Asymmetry, Price Momentum, and the Disposition Effect written by Günter Strobl and published by . This book was released on 2012 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economists have long been puzzled by the tendency of investors to sell winning investments too soon and hold losing investments too long. Several behavioral explanations for this phenomenon, known as the disposition effect, have been advanced. This paper demonstrates that disposition effects are not intrinsically at odds with rational behavior. Specifically, we show (i) that disposition effects arise quite naturally in a world with changing information asymmetry, (ii) that existing empirical tests rejecting an information-based explanation are inconclusive, and (iii) that disposition effects are consistent with price momentum. We further derive new empirical implications relating disposition behavior to trading volume, return variability, and price dynamics.
Author : James S. Scott
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book News, Not Trading Volume, Builds Momentum written by James S. Scott and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent research has found that price momentum and trading volume appear to predict subsequent stock returns in the U.S. market and that they seem to do so in a nonlinear fashion. Specifically, the effect of momentum appears more pronounced among high-volume stocks than among low-volume stocks. This effect would suggest the existence of an exploitable deviation from market efficiency. We argue that this phenomenon is a result of the underreaction of investors to earnings news - an effect that is most pronounced for high-growth companies. We show that, after earnings-related news and a stock's growth rate have been controlled for, the interaction between momentum and volume largely disappears.
Author : Adam Zaremba
Publisher : Springer
ISBN 13 : 3319915304
Total Pages : 325 pages
Book Rating : 4.3/5 (199 download)
Download or read book Price-Based Investment Strategies written by Adam Zaremba and published by Springer. This book was released on 2018-07-25 with total page 325 pages. Available in PDF, EPUB and Kindle. Book excerpt: This compelling book examines the price-based revolution in investing, showing how research over recent decades has reinvented technical analysis. The authors discuss the major groups of price-based strategies, considering their theoretical motivation, individual and combined implementation, and back-tested results when applied to investment across country stock markets. Containing a comprehensive sample of performance data, taken from 24 major developed markets around the world and ranging over the last 25 years, the authors construct practical portfolios and display their performance—ensuring the book is not only academically rigorous, but practically applicable too. This is a highly useful volume that will be of relevance to researchers and students working in the field of price-based investing, as well as individual investors, fund pickers, market analysts, fund managers, pension fund consultants, hedge fund portfolio managers, endowment chief investment officers, futures traders, and family office investors.
Author : Yan Han
Publisher : Bridge 21 Publications
ISBN 13 : 1626430888
Total Pages : 152 pages
Book Rating : 4.6/5 (264 download)
Download or read book The Behavior of Financial Markets under Rational Expectations written by Yan Han and published by Bridge 21 Publications. This book was released on 2022-10-14 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt: The financial markets have become more and more important in modern society. The behavior of the financial markets, and its impacts on our society, relies crucially on the behavior of market participants, aka the investors of different types. Although descriptions of the financial markets on the macro level have caught great attentions of investors, regulators, and the ordinary people, how the market participants interact with each other in the financial market may provide deeper insights on how and why the financial markets behave. This book tries to supply as much research on the micro level of financial market behavior as possible to the readers. The author has been doing financial research, especially on the micro level, during the past two decades. The academic research on this broad area has undergone a rapid growth, with new results, methods, theories, and even paradigms, emerging and burgeoning almost every year. As a financial researcher in one of Chinas top universities, the author has kept monitoring, digesting, and synthesizing the research articles in the area. This book is the outcome of this decades-long routine research work of the author. The book covers the fundamental economic theories of how different investors receive and interpret information. The empirical results of investors behavior are also discussed in depth. The book also shows the basic academic techniques of modeling the investors behavior.
Author : Mark Grinblatt
Publisher :
ISBN 13 :
Total Pages : 64 pages
Book Rating : 4.3/5 ( download)
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 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Wesley R. Gray
Publisher : John Wiley & Sons
ISBN 13 : 111923719X
Total Pages : 215 pages
Book Rating : 4.1/5 (192 download)
Download or read book Quantitative Momentum written by Wesley R. Gray and published by John Wiley & Sons. This book was released on 2016-10-03 with total page 215 pages. Available in PDF, EPUB and Kindle. Book excerpt: The individual investor's comprehensive guide to momentum investing Quantitative Momentum brings momentum investing out of Wall Street and into the hands of individual investors. In his last book, Quantitative Value, author Wes Gray brought systematic value strategy from the hedge funds to the masses; in this book, he does the same for momentum investing, the system that has been shown to beat the market and regularly enriches the coffers of Wall Street's most sophisticated investors. First, you'll learn what momentum investing is not: it's not 'growth' investing, nor is it an esoteric academic concept. You may have seen it used for asset allocation, but this book details the ways in which momentum stands on its own as a stock selection strategy, and gives you the expert insight you need to make it work for you. You'll dig into its behavioral psychology roots, and discover the key tactics that are bringing both institutional and individual investors flocking into the momentum fold. Systematic investment strategies always seem to look good on paper, but many fall down in practice. Momentum investing is one of the few systematic strategies with legs, withstanding the test of time and the rigor of academic investigation. This book provides invaluable guidance on constructing your own momentum strategy from the ground up. Learn what momentum is and is not Discover how momentum can beat the market Take momentum beyond asset allocation into stock selection Access the tools that ease DIY implementation The large Wall Street hedge funds tend to portray themselves as the sophisticated elite, but momentum investing allows you to 'borrow' one of their top strategies to enrich your own portfolio. Quantitative Momentum is the individual investor's guide to boosting market success with a robust momentum strategy.
Author : Frank Welfens
Publisher :
ISBN 13 :
Total Pages : 52 pages
Book Rating : 4.:/5 (129 download)
Download or read book How do Markets React to Fundamental Shocks? An Experimental Analysis on Underreaction and Momentum written by Frank Welfens and published by . This book was released on 2009 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We perform a market experiment to investigate how average transaction prices react to the arrival of new information. Following a positive shock in fundamental value, prices underreact strongly; following negative shocks we find evidence of a much less pronounced underreaction. After the shock, prices in both situations slowly drift towards the new fundamental value, leading to a characteristic momentum pattern. Controlling for investors' individual disposition effects we form high- and low-disposition markets and prove both underreaction and momentum to be stronger in the high-disposition group. While evidence is mainly in favor of underreaction models like Grinblatt and Han (2005), we conclude based on our findings that positive and negative shocks are not two sides of the same coin and encourage future studies to disentangle the asymmetry between the two situations more carefully.
Author : Guo Ying Luo
Publisher : Springer Science & Business Media
ISBN 13 : 1461493692
Total Pages : 70 pages
Book Rating : 4.4/5 (614 download)
Download or read book Asset Price Response to New Information written by Guo Ying Luo and published by Springer Science & Business Media. This book was released on 2013-10-16 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: Asset Price Response to New Information examines the effect of two types of psychological biases (namely, conservatism bias and representativeness heuristic) on the asset price reaction to new information. The author constructs various models of a competitive securities market or a security market allowing for strategic interaction among traders to prove rigorously that either conservatism or representativeness is capable of generating both asset price overreaction and underreaction to new information. The results shed some new insights on the phenomena of the asset price overreaction and underreaction to new information. In the literature, very little has been published in this area of behavioral finance. This volume will appeal to graduate-level students and researchers in finance, behavioral finance, and financial engineering.
