The disposition effect, performance, stop loss orders and education

Talpsepp, Tõnn; Vaarmets, Tarvo

doi:10.1016/j.jbef.2019.100240

Cited by 36 publications

(8 citation statements)

References 29 publications

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“…The research on emotional bias comes from behavioural finance, psychology and neuroscience. Although behavioural finance has attention from various scholars worldwide, specifically the disposition effect, the solution's effectiveness in improving the investors' wealth and avoiding the disposition effect leaves room to be enhanced (Talpsepp & Vaarmets, 2019). For example, the disposition effect resulting from the emotional bias can only be reduced to a certain extent using a stop-loss order (Talpsepp & Vaarmets, 2019).…”

Section: Discussionmentioning

confidence: 99%

“…Although behavioural finance has attention from various scholars worldwide, specifically the disposition effect, the solution's effectiveness in improving the investors' wealth and avoiding the disposition effect leaves room to be enhanced (Talpsepp & Vaarmets, 2019). For example, the disposition effect resulting from the emotional bias can only be reduced to a certain extent using a stop-loss order (Talpsepp & Vaarmets, 2019). And yet, for the disposition effect itself, there are about twelve theories to explain this bias, and future research could focus on measuring the disposition effect based on the actual behaviour of the investors (Zahera & Bansal, 2019).…”

Section: Discussionmentioning

confidence: 99%

“…This phenomenon was discussed by (Weber & Camerer 1998) and remained a puzzle on how to minimise it. The stop-loss approach was implemented, but the effect only worked to a certain extent (Talpsepp & Vaarmets, 2019). Many theories tried to explain the disposition effect (Zahera & Bansal, 2019), yet there is no consensus on how it occurs.…”

Section: Several Phenomena In Investment and Emotional Knowledgementioning

confidence: 99%

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Challenges of Integrating Emotion into a Theoretical Framework in a Higher Education Investment Course

Kiky¹

2022

JRE

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COVID-19 has changed many aspects of our daily life. In order to minimise the spread of the virus, social interaction was restricted, and as a result, community gatherings became less than before. The social restriction has created an opportunity in the digital economy; specifically, it has boosted the number of retail investors in Indonesia. Investment is a compulsory subject taught to business students, and the emergence of retail investors deserves special attention in our syllabus. However, fundamental theories of investment that are being taught in current education systems only focus on the cognitive aspect and theoretical framework to measure investment risk without any learning experience on the emotional part. This research argues that without emotion, the investment framework is not complete. Therefore, this research aims to evaluate the ongoing investment course at Pradita University and provide suggestions for a future class. An independent t-test is conducted to measure the perceived emotional feeling between a group of students with trading or simulation experience and the inexperienced group. The outcomes of this research could contribute to the body of knowledge to build a proper syllabus for investment courses for higher education.

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Section: Discussionmentioning

confidence: 99%

Section: Discussionmentioning

confidence: 99%

Section: Several Phenomena In Investment and Emotional Knowledgementioning

confidence: 99%

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Challenges of Integrating Emotion into a Theoretical Framework in a Higher Education Investment Course

Kiky¹

2022

JRE

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“…We finally propose a generalized method, the loss strategy, which is able to reproduce the behavior of the previously analyzed strategies, depending on how a parameter is tuned. That parameter specifies how much the agent is willing to lose in relation to its initial budget (similar to the "stop-loss" order in the stock market [77]). When = 0, the player does not accept any risk of decreasing the budget, quitting the game immediately, which corresponds to the timid strategy.…”

Section: Discussionmentioning

confidence: 99%

Deciding when to quit the gambler's ruin game with unknown probabilities

Perotto

Trabelsi

Combettes

et al. 2021

International Journal of Approximate Reasoning

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In the standard definition of the classical gambler's ruin game, a persistent player enters in a stochastic process with an initial budget b 0 , which is, round after round, either increased by 1 with probability p, or decreased by 1 with probability 1 − p. The player wins the game if the budget reaches a given objective value g, and loses the game if the budget drops to zero (the gambler is ruined). This article introduces the decisional gambling process, where the parameter p is hidden, and the player has the possibility to stop the game at any round keeping earnings. In this case, the best a player can do is to maintain an estimate of p based on the observed outcomes, and use it to decide whether is better to stay or quit the game. The main contribution of this article is to bring the question of finding the optimal stopping time to the gambler's ruin game.Different heuristics are analyzed and evaluated according to their performance in maximizing the gambler's expected final budget.

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“…Frydman and Camerer (2016), Richards et al (2018), Duxbury et al (2020), among others, provide a broad range of insights into investors' performance by linking their financial decisions to a diverse spectrum of motives from psychology and aspects of neuroscience, some of which place emphasis on the role of emotions. Other approaches identify education (Talpsepp & Vaarmets, 2019; Vaarmets et al, 2019) and social interactions (Heimer, 2016; Rau, 2015) as key factors to support the disposition effect. In contrast, research interest in the presence of the disposition effect among fund investors has been less forthcoming.…”

Section: Introductionmentioning

confidence: 99%

Investor behavior and the demand for conventional and socially responsible mutual funds

Matallín‐Sáez

Soler‐Domínguez

Navarro-Montoliu

et al. 2021

Corp Soc Responsibility Env

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This study analyzes the demand for conventional and socially responsible (SR) mutual funds using cash flow data from a large sample of U.S. equity funds. For both types of funds, previous results have a positive impact on inflows. However, redemptions' behavior differs. Outflows correlate negatively with past results in conventional portfolios, whereas this relationship is positive for SR funds: investors are more likely to redeem shares in the best‐performing funds while holding funds that performed poorly. This behavior is compatible with a disposition effect in SR funds. These results hold even after controlling for other variables driving mutual fund demand. Hence, inflows and outflows of conventional funds were found to be positively related to past idiosyncratic risk, expenses and turnover, but negatively related to size and age. For SR funds, these relationships are stronger for size and idiosyncratic risk, and take the opposite sign for age, expenses and turnover.

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The disposition effect, performance, stop loss orders and education

Cited by 36 publications

References 29 publications

Challenges of Integrating Emotion into a Theoretical Framework in a Higher Education Investment Course

Challenges of Integrating Emotion into a Theoretical Framework in a Higher Education Investment Course

Deciding when to quit the gambler's ruin game with unknown probabilities

Investor behavior and the demand for conventional and socially responsible mutual funds

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