Abstract
Given the significance and perceived inevitability of disposition effect and its impact on investment decisions, we investigate factors affecting the disposition effect in the Tehran Stock Exchange. Four hypotheses were developed and the data used in the study were collected through availability sampling. One-sample t-test, two-sample t-test and one-way ANOVA were run to analyze the data while Pearson correlation test and multiple regressions were used to assess relationships among variables in question. The results of the analyses indicate that overconfidence and mental accounting were not significantly correlated with disposition effect. Regret aversion had a positive relationship with disposition effect while self control was negatively associated. It was also observed that there was a negative relationship between participants’ level of education and their disposition effect indicating that the higher the level of education, the less the rate of disposition effect. Furthermore, the results of the study show that males enjoy a higher level of overconfidence than females, and 20 to 30 year-old age groups displayed much overconfidence than other age groups.
Highlights
Recent research findings by a variety of researchers indicate that the impact of psychology on investors’ decision-making cannot be ignored, and the mere reliance on Efficient Market Hypothesis (EMH), Capital Assets valuation model (CAPM), and the notion of “Homo economicus” to study these decisions may not be sufficient
The aim of the present study is to examine the relationships between four behavioral biases and disposition effect and to take some efforts to reduce these biases among stockholders in Tehran Stock Exchange
Based on mean test of the population, the amount of disposition effect, t-value, is 7.726 which is higher than 1.96, so it can be concluded that there is a high level of disposition effect in Tehran Stock Exchange
Summary
Recent research findings by a variety of researchers indicate that the impact of psychology on investors’ decision-making cannot be ignored, and the mere reliance on Efficient Market Hypothesis (EMH), Capital Assets valuation model (CAPM), and the notion of “Homo economicus” to study these decisions may not be sufficient. When observing investors’ behavior in the stock market, we come across behaviors which are inconsistent with those of an economic man. In recent years, scientists and researchers have increasingly paid attention to the science of behavioral finance, which by combining economics and psychology tries to account for investors’ behaviors which are not often quite reasonable and formalizes biases affecting investment decisions taken by investors. Of these biases, one is “loss aversion” which, in practice, represents itself in the form of “disposition effect”. Disposition effect accounts for investors’ behaviors through an s-shaped value function
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