An examination of the relationship between the disposition effect and gender, age, the traded security, and bull–bear market conditions

Cheng, Teng Yuan; Lee, Chun I.; Lin, Chao Hsien

doi:10.1016/j.jempfin.2013.01.003

Cited by 39 publications

(25 citation statements)

References 29 publications

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“…Regarding the disposition effect, we observe that younger, less experienced, female individuals, who rely strongly on price movements as a source of information, are more likely than others to fall victim to the disposition effect. Our findings regarding the effects of age and gender are consistent with the results of Cheng et al (2013), who used data on investors in the Taiwan Futures Exchange. Our findings on the relevance of investment experience are consistent with the results of Dhar and Zhu (2006).…”

Section: Drivers Of Investment Mistakessupporting

confidence: 90%

Investment competence and advice seeking

Bachmann

Hens

2015

Journal of Behavioral and Experimental Finance

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This paper evaluates individuals' ability to avoid investment mistakes and analyzes how investment competence is related to the propensity to seek or rely on professional advice. To address these issues, we use novel survey data collected from a representative sample of Swiss households. We find that investment competence is characterized by significant age and gender gaps, and that individuals who rely less on price movements as a source of information about investments are more likely to show above-the-average investment competence. We also find that individuals with relatively extensive investment experience and those who rely relatively strongly on their own judgment in making investment decisions are more likely to make investment decisions autonomously. In addition, we find that investment competence is positively related to the demand for financial advice. Thus, it appears that the individuals who most need financial advice are those who are least likely to seek such advice and rely on it.

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Section: Drivers Of Investment Mistakessupporting

confidence: 90%

Investment competence and advice seeking

Bachmann

Hens

2015

Journal of Behavioral and Experimental Finance

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“…We also observe that the tendency to incur the disposition effect decreases in bull markets but increases during bear markets. These findings are in accordance with Ranguelova (2001) and Cheng, Lee, and Lin (2013), who argues that when confronted with losses, individuals tend to become less risk-averse in an attempt to break even and are more likely to incur behavioural biases. To our knowledge, this study is the first to analyse cognitive biases during bull and bear markets in the Brazilian economy.…”

Section: Introductionsupporting

confidence: 91%

Disposition effect, demographics and risk taking

Oreng

Yoshinaga

Eid

2021

RAUSP

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Purpose This study aims to investigate the association of demographic characteristics, market conditions and risk taking with the disposition effect using data on Brazilian individual investors. Design/methodology/approach This study uses a unique data set with monthly data from June 2007 to February 2017 provided by one of the largest asset management firms in Brazil. This paper computes the proportion of gains realized and the proportion of losses realized to see if investors incur the disposition effect. This paper then performs logistic regressions to verify the association between investors’ disposition effects and demographic and portfolio characteristics. This paper analyses the prevalence of cognitive biases depending on market conditions (bull or bear markets) and include regressions by asset class as robustness checks. Findings This paper finds evidence that risk averse investors are more prone to the disposition effect, male subjects are less prone to this cognitive bias and age is not associated with the disposition effect. This paper observes that the tendency to incur the disposition effect decreases during bull markets but increases during bear markets. Also, this paper finds that sophisticated investors are more prone to selling winning assets and holding on to losses. Research limitations/implications First, paper gains and losses are based on the highest and lowest prices of the month and not on the price at the moment the sale occurred. Second, this paper had access only to end-of-month information, not to actual daily trading records. Third, because the data set relates to individual investors who trade investment funds, this paper cannot determine whether firm size is associated with the disposition effect. Fourth, age may not necessarily be a proxy for investor experience, so one should interpret the lack of significance for age in terms of generational differences. Practical implications This paper demonstrates that the disposition effect is prevalent even among wealthier and more educated investors with delegated asset classes. This paper also presents evidence on the association between demographic characteristics and cognitive biases considering a liquidity-constrained, highly volatile and developing market. Social implications This paper demonstrates that gender is an important characteristic to understand cognitive biases and that investor sophistication may not necessarily be an attenuation factor for the disposition effect in a liquidity-constrained market. Originality/value This is the first study to analyse the role of demographic characteristics and risk taking to explain the disposition effect using real information at the individual level about Brazilian investors. It is also the first to analyse the intensity of cognitive biases during bull and bear markets in the Brazilian economy.

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“…According to their results, the impact of a surprise policy action in a ‘bear’ market for most industries is significantly greater than the impact of surprise monetary policy in a ‘bull’ market. Cheng, Lee and Lin (2013) examine the magnitude of the disposition effect between ‘bear’ and ‘bull’ markets and find that in the ‘bear’ market, there is a stronger disposition effect.…”

Section: Introduction and Literature Reviewmentioning

confidence: 99%

Statistical Arbitrage Strategies under Different Market Conditions: The Case of the Greek Banking Sector

Mavrakis

Alexakis

2018

Journal of Emerging Market Finance

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In this article, we examine the behaviour of cointegration-based pairs trading (PT) strategies, under different market conditions. Reported results indicate that changes in market conditions affect the stability of long-run relations between pairs of stocks, therefore suggesting that arbitrageurs should perform rebalancing between the examined stocks when a change in market trend is evident. The applicability of our results may be of importance to market participants; although cointegration applications have received considerable attention from hedge funds adopting statistical arbitrage (SA) strategies, little evidence has been reported for the validity of these trading strategies under changing market conditions. JEL Classification: C32, G11

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An examination of the relationship between the disposition effect and gender, age, the traded security, and bull–bear market conditions

Cited by 39 publications

References 29 publications

Investment competence and advice seeking

Investment competence and advice seeking

Disposition effect, demographics and risk taking

Statistical Arbitrage Strategies under Different Market Conditions: The Case of the Greek Banking Sector

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