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Disposition Matters: Volume, Volatility and PriceImpact of a Behavioral Bias

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Author Info
William N. Goetzmann () (Yale School of Management, International Center for Finance)
Massimo Massa () (INSEAD - Department of Finance)

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Abstract

In this paper, we estimate the behavioral component of the Grinblatt and Han (2002) model and derive several testable implications about the expected relationship between the preponderance of disposition - prone investors in a market and volume, volatility and stock returns. To do this, we use a large sample of individual accounts over a six-year period in the 1990's in order to identify investors who are subject to the disposition effect. We then use their trading behavior to construct behavioral factors. We show that when the fraction of

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm14.

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Date of creation: 01 Jan 2003
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Handle: RePEc:ysm:somwrk:ysm14

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  1. John Y. Campbell, 2000. "Asset Pricing at the Millennium," Harvard Institute of Economic Research Working Papers 1897, Harvard - Institute of Economic Research. [Downloadable!]
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  2. Philip Brown & Nick Chappel & Ray Da Silva Rosa & Terry Walter, 2006. "The Reach of the Disposition Effect: Large Sample Evidence Across Investor Classes-super-," International Review of Finance, International Review of Finance Ltd., vol. 6(1-2), pages 43-78. [Downloadable!] (restricted)
  3. Shlomo Benartzi & Richard H. Thaler, 2001. "Naive Diversification Strategies in Defined Contribution Saving Plans," American Economic Review, American Economic Association, vol. 91(1), pages 79-98, March. [Downloadable!] (restricted)
  4. Ning Zhu & Ravi Dhar, 2002. "Up Close and Personal: An Individual Level Analysis of the Disposition Effect," Yale School of Management Working Papers ysm269, Yale School of Management. [Downloadable!]
  5. Stephen J. Brown & William N. Goetzmann & Takato Hiraki & Noriyoshi Shirishi & Masahiro Watanabe, 2003. "Investor Sentiment in Japanese and U.S. Daily Mutual Fund Flows," NBER Working Papers 9470, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Benartzi, Shlomo & Thaler, Richard H, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 73-92, February. [Downloadable!] (restricted)
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  7. Alon Brav & J.B. Heaton, 2002. "Competing Theories of Financial Anomalies," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(2), pages 575-606, March.
  8. Brad M. Barber & Terrance Odean, 2002. "Online Investors: Do the Slow Die First?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(2), pages 455-488, March.
  9. William N. Goetzmann & Massimo Massa, 1999. "Index Funds and Stock Market Growth," NBER Working Papers 7033, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. William N. Goetzmann & Alok Kumar, 2004. "Equity Portfolio Diversification," Yale School of Management Working Papers ysm17, Yale School of Management. [Downloadable!]
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  1. Grinblatt, Mark & Han, Bing, 2003. "The Disposition Effect and Momentum," Working Paper Series 2004-3, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
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  2. Weber, Martin & Welfens, Frank, 2007. "How do Markets React to Fundamental Shocks? An Experimental Analysis on Underreaction and Momentum," Sonderforschungsbereich 504 Publications 07-42, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
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