Disposition Matters: Volume, Volatility and Price Impact of a Behavioral Bias
AbstractIn this paper, we estimate the behavioral component of the Grinblatt and Han (2002) model and deriveseveral 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 ofindividual accounts over a six-year period in the 1990`s in order to identify investors who are subject to thedisposition effect. We then use their trading behavior to construct behavioral factors. We show that whenthe fraction of "irrational" investor purchases in a stock increases, the unexplained portion of the marketprice of the stock decreases. We further show that statistical exposure to a disposition factor explainscross-sectional differences in daily returns, controlling for a host of other factors and characteristics. Theevidence is consistent with the hypothesis that trade between disposition-prone investors and theircounter-parties impact relative prices.
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Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm31.
Date of creation: 25 Feb 2003
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-07-18 (All new papers)
- NEP-FIN-2004-07-18 (Finance)
- NEP-FMK-2004-07-18 (Financial Markets)
- NEP-MIC-2004-07-18 (Microeconomics)
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- 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.
- Andrey Kudryavtsev & Gil Cohen & Shlomit Hon-Snir, 2013. "“Rational” or “Intuitive”: Are Behavioral Biases Correlated Across Stock Market Investors?," Contemporary Economics, University of Finance and Management in Warsaw, vol. 7(2), June.
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