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Disposition Effect and Asset Pricing in an Emerging Stock Market

Author

Listed:
  • Muhammad Aftab

    (Department of Finance and Banking, Faculty of Business and Accountancy, University of Malaya, Malaysia.)

  • Ijaz Ur Rehman

    (Department of Management Sciences, COMSATS Institute of Information Technology, Lahore Campus, Pakistan.)

  • Abolaji Daniel Anifowose

    (Department of Finance and Banking, Faculty of Business and Accountancy, University of Malaya, Malaysia.)

Abstract

Psychological factors influence and distort financial decision-making and asset valuation in the real world. However, conventional asset pricing model ignores such factors albeit incorporation of psychological factors can enhance the effectiveness of asset pricing. The disposition effect, which is one of the distortions present in the financial market yield significant implications. Disposition effect is a phenomenon where investors hold losing investment ‘too long’ and sell winning investment ‘too soon’. Purpose: This paper examines the disposition effect in the Karachi Stock Exchange (KSE) and investigates its role in asset pricing in the same market. Methodology: Regression approach is usedfor empirical purpose. Findings: The findings provide an evidence of a disposition effect in KSE and a quite interestingly show that the disposition effect reduces expected returns.Recommendations: Policy recommendations have been provided.

Suggested Citation

  • Muhammad Aftab & Ijaz Ur Rehman & Abolaji Daniel Anifowose, 2016. "Disposition Effect and Asset Pricing in an Emerging Stock Market," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 4(6), pages 320-332, June.
    • Handle: RePEc:ijr:journl:v:4:y:2016:i:6:p:320-332
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    More about this item

    Keywords

    Asset Pricing; Disposition Effect; Investor Behavior; KSE;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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