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The role of investor sentiment and market belief in forecasting V-shaped disposition effect: Evidence from a Bayesian learning process with DSSW model

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  • Bouteska, Ahmed
  • Kabir Hassan, M.
  • Gider, Zeynullah
  • Bataineh, Hassan

Abstract

By using the trading data and corporate financial data from 2010 to 2022 in Korean stock market, we combine the Bayesian learning process with the DSSW model to investigate the size and specific manifestations of the disposition effect when market belief is different from investors' irrational beliefs. We find that there is a significant negative correlation between investor sentiment and the investor disposition effect. Moreover, affected by sentiment, the performance of investor disposition effect in the bull market and the bear market is quite opposite. The conclusion of this paper has certain theoretical and practical significance for understanding the disposition effect of investors, optimizing investors' selling decisions, and strengthening the construction of a basic system of the capital market.

Suggested Citation

  • Bouteska, Ahmed & Kabir Hassan, M. & Gider, Zeynullah & Bataineh, Hassan, 2024. "The role of investor sentiment and market belief in forecasting V-shaped disposition effect: Evidence from a Bayesian learning process with DSSW model," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:ecofin:v:71:y:2024:i:c:s1062940824000081
    DOI: 10.1016/j.najef.2024.102084
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    Keywords

    Irrational expectation; Speculative trading; Asset pricing;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General

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