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Does The Association Between Abnormal Trading Volumes And Historical Prices Explain Disposition Effect?

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  • Sravani Bharandev

    (Indian Institute of Technology Bombay)

  • Sapar Narayan Rao

    (Indian Institute of Technology Bombay)

Abstract

Investment behavior is influenced by various behavioral biases. Two among them are disposition effect and anchoring. Using market level data, we investigate the presence of disposition effect in Indian stock markets. Initially, it was found that high (low) trading volumes are not associated with winner (loser) stocks. Further based on the evidence provided by studies done on market level data, we consider abnormal trading volumes as the proxy for disposition effect. Investors’ tendency to update their reference points and the prominence of historical prices (anchors) as reference points allowed a study to test the association between abnormal trading volumes and historical prices. Except for familiar and highly liquid stocks (Nifty50 index stocks) this study found that abnormal trading volumes are associated with a significantly more percentage of winning days than that of losing days. This study is useful for investors and fund managers while taking trading decisions and also when forming the portfolios.

Suggested Citation

  • Sravani Bharandev & Sapar Narayan Rao, 2021. "Does The Association Between Abnormal Trading Volumes And Historical Prices Explain Disposition Effect?," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 28(1), pages 141-151, March.
    • Handle: RePEc:kap:apfinm:v:28:y:2021:i:1:d:10.1007_s10690-020-09321-5
    DOI: 10.1007/s10690-020-09321-5
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    References listed on IDEAS

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    1. Kejia Yan & Rakesh Gupta & Sama Haddad, 2022. "Statistical Analysis Dow Jones Stock Index—Cumulative Return Gap and Finite Difference Method," JRFM, MDPI, vol. 15(2), pages 1-44, February.

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    More about this item

    Keywords

    Disposition effect; Anchoring; Abnormal trading volumes; Historical prices and 52-week prices;
    All these keywords.

    JEL classification:

    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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