scholarly journals Disposition effect, demographics and risk taking

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mariana Oreng ◽  
Claudia Emiko Yoshinaga ◽  
William Eid Junior
Keyword(s):  
Risk Taking ◽  
Asset Management ◽  
Cognitive Biases ◽  
Demographic Characteristics ◽  
Disposition Effect ◽  
Individual Investors ◽  
Market Conditions ◽  
Data Set ◽  
Content Type ◽  
Bear Markets

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.

Personality characteristics of the self-employed

2015 ◽  
Vol 34 (9) ◽  
pp. 1094-1112 ◽  
Author(s):  
Darren Lee-Ross
Keyword(s):  
Locus Of Control ◽  
Risk Taking ◽  
Policy Formation ◽  
The Self ◽  
Personality Characteristics ◽  
Need For Achievement ◽  
Data Set ◽  
Content Type ◽  
Comparison Groups ◽  
European Values

Purpose – The purpose of this paper is to permit further understanding of entrepreneurial personality characteristics of need for achievement, locus of control, innovation, risk-taking and competitive aggression by comparing the self-employed with waged and salaried workers and the general population. Design/methodology/approach – A logistic regression equation was used on the “World Values Survey (WVS)” data set to test the relationship between entrepreneurship and personality characteristics by estimating the probability of an event occurring directly. Findings – This research replicated and extended the earlier work of Beugelsdijk and Noorderhaven (2005). Using two reference groups for comparison, entrepreneurs are different in terms of their psychological characteristics. Specifically, these are need for achievement and locus of control; these were the strongest characteristics. Competitive aggression and risk-taking were moderate in this respect with innovation finding least support. Research limitations/implications – In terms of limitations, the present study does not account for environmental enablers or mitigation of starting and sustaining businesses. Also how do the national media, society and culture regard entrepreneurship? Moreover, is there only one model of entrepreneurship or several? For example, amongst indigenous societies, entrepreneurship is more of a collective rather than an individual pursuit where culture and heritage preservation are more important than purely profit generation. Similarly, no account is taken of the differences (nuanced or otherwise) between entrepreneurial personality characteristics in factor vs opportunity/innovation-driven economies. Practical implications – The self-employed in this study were different to both comparison groups which is important information for government policy formation at all levels in terms of targeted business/career education, infrastructure, funding, opportunity creation and incubator programmes. Furthermore, rudimentary community and university diagnostics could be formulated around these entrepreneurial characteristics to identify potential entrepreneurs for a “career” of self-employment or placement within large firms as “intrapreneurs” to improve productivity and economic growth. Originality/value – This study is the first to use the WVS for scrutiny of entrepreneurial personality traits. It expands and augments earlier work in the field which used the smaller “European Values Survey” by including many more questions pertaining to entrepreneurial personality characteristics adding additional robustness to the outcomes.

A study of prominence for disposition effect: a systematic review

2019 ◽  
Vol 11 (1) ◽  
pp. 2-21 ◽  
Author(s):  
Syed Aliya Zahera ◽  
Rohit Bansal
Keyword(s):  
Mutual Funds ◽  
Behavioral Finance ◽  
Mutual Fund ◽  
Institutional Investors ◽  
Disposition Effect ◽  
Individual Investors ◽  
Content Type ◽  
Experimental Market ◽  
The Individual ◽  
The Impact

Purpose The purpose of this paper is to study the disposition effect that is exhibited by the investors through the review of research articles in the area of behavioral finance. When the investors are hesitant to realize the losses and quick to realize the gains, this phenomenon is known as the disposition effect. This paper explains various theories, which have been evolved over the years that has explained the phenomenon of disposition effect. It includes the behavior of individual investors, institutional investors and mutual fund managers. Design/methodology/approach The authors have used the existing literatures from the various authors, who have studied the disposition effect in either real market or the experimental market. This paper includes literature over a period of 40 years, that is, Dyl, 1977, in the form of tax loss selling, to the most recent paper, Surya et al. (2017). Some authors have used the PGR-PLR ratio for calculating the disposition effect in their study. However, some authors have used t-test, ANNOVA, Correlation coefficient, Standard deviation, Regression, etc., as a tool to find the presence of disposition effect. Findings The effect of disposition can be changed for different types of individual investors, institutional investors and mutual funds. The individual investors are largely prone to the disposition effect and the demographic variables like age, gender, experience, investor sophistication also impact the occurrence of the disposition effect. On the other side, the institutional investors and mutual funds managers may or may not be affected by the disposition effect. Practical implications The skilled understanding of the disposition effect will help the investors, financial institutions and policy-makers to reduce the adverse effect of this bias in the stock market. This paper contributes a detailed explanation of disposition effect and its impacts on the investors. The study of disposition effect has been found to be insufficient in the context of Indian capital market. Social implications The investors and society at large can gains insights about causes and influences of disposition effect which will be helpful to create sound investment decisions. Originality/value This paper has complied the 11 causes for the occurrence of disposition effect that are found by the different authors. The paper also highlights the impact of the disposition effect in the decision-making of various investors.

An analysis of operating expense control within US multifamily properties

2017 ◽  
Vol 35 (1) ◽  
pp. 48-66 ◽  
Author(s):  
Andrew Carswell
Keyword(s):  
Explanatory Variable ◽  
Rental Housing ◽  
Positive Association ◽  
Individual Investors ◽  
Property Management ◽  
Property Market ◽  
Data Set ◽  
Content Type ◽  
Operating Income ◽  
The Usa

Purpose The purpose of this paper is to determine the effect that ownership and management structures have on ability to control operating expenses. For individual investors, intensity of management experience is also explored as a possible explanatory variable for operating expenses. For property management services that are contracted out, the level of the fee is investigated as a possible cause for movements in operating expenses as well. Finally, operating expenses are used as a possible explanatory variable for a property’s lease-up performance during the year. Design/methodology/approach The analysis consists of a series of regression models performed on data provided by the 2012 Rental Housing Finance Survey (RHFS) in the USA. The RHFS is a unique data set that covers a wide degree of information on multifamily properties. The RHFS represents 2,260 properties in total, and covers various aspects of the apartment industry, including financing and operational cost measures. Control variables used as independent variables include number of units, year of property acquisition, and age of building. Findings Individual ownership and self-management proved to be statistically significant drivers in driving down log operating expenses. Hours spent by individuals performing property management roles on their own properties had a slightly positive association with operating expenses. For professional managers, the fees devoted solely to the manager or management company had a highly significant and positive effect on other operating costs. Finally, when separating out the individual components of operating expenses, only two variables had significant effects on tenant lease-ups: management expenses (positive) and security expenses (negative). Research limitations/implications The data set is potentially biased toward those properties with less than 100 units, and thus it would be problematic to assume that these findings are generalizable to the population at large. There are also no geographic coding indicators within the RHFS data set, which eliminates the potential to control for various market factors and rural/urban differences. Practical implications The research provides an understanding of some of the basic factors behind increases in operating expenses, which ultimately has implications for performance benchmarks such as net operating income and property market value. Social implications The reasonable controlling of operating expenses ultimately has potentially positive implications for low- to moderate-income populations, who would ultimately experience lower rents as a result. Originality/value This research represents one of the first known uses of the RHFS database.

Can BRICS and ASEAN-5 emerging economies benefit from bank diversification?

2019 ◽  
Vol 27 (1) ◽  
pp. 43-69 ◽  
Author(s):  
Syed Moudud-Ul-Huq
Keyword(s):  
Risk Taking ◽  
Generalized Method Of Moments ◽  
The Other ◽  
Set Covering ◽  
Diversification Strategy ◽  
Data Set ◽  
Content Type ◽  
Diversification Benefit ◽  
The Impact ◽  
The Relationship

Purpose This paper aims to empirically investigate the impact of bank diversification on performance and risk-taking behavior. The analysis uses an unbalanced panel data set covering the period between 2007 and 2015 for a total of 1,397 banks from ASEAN-5 and BRICS economies. Design/methodology/approach Dynamic panel generalized method of moments (GMM) has been used primarily to examine the relationship between bank diversification on performance and risk-taking and later, validate the core results by incorporating two-stage least squares (2SLS). Findings Similar to the results of previous studies based on the developed economy, this study also confirms the hypothesis of the portfolio diversification. The key robust result is that the benefits from revenue and assets diversification are heterogeneous and the BRICS banks achieve higher benefit from using both diversification strategies. On the other hand, ASEAN-5 banks fail to show the significant advantage from assets diversification. Among the diverse sources of income, interest is not a major determinant of efficiency and bank’s stability, while ASEAN-5 banks should foster commission and others income as mechanisms for diversification benefit in the region. Originality/value A few studies are available in the current literature which examines the impact of revenue and assets diversification on either bank performance or risk-taking in the developed economy’s context. However, very few studies are found that examine the relationship between bank diversification, performance and risk-taking together. Moreover, to the best of the author’s knowledge, there is a dearth of literature on this topic that built on the comparative analysis between two regions, i.e. ASEAN-5 and BRICS. As a result, the empirical results of this research provide useful information to the stakeholders so that they can enhance bank diversification strategy and implement them successfully by considering the other factors.

scholarly journals Climate change adaptation in the management of public buildings: an Indonesian context

2019 ◽  
Vol 37 (2) ◽  
pp. 140-162
Author(s):  
Jose Arif Lukito ◽  
Connie Susilawati ◽  
Ashantha Goonetilleke
Keyword(s):  
Climate Change ◽  
Decision Making ◽  
Community Engagement ◽  
Climate Change Adaptation ◽  
Asset Management ◽  
Policy Development ◽  
Change Leadership ◽  
Public Buildings ◽  
Data Set ◽  
Content Type

PurposeThe purpose of this paper is to provide a strategy to integrate climate change adaptation (CCA) in public asset management (PAM) in Indonesia. This paper focusses on public buildings as part of a public asset.Design/methodology/approachAs an archipelagic country, Indonesia is very vulnerable to sea-level rise as a result of climate change. The outcomes of a qualitative analysis of interviews with relevant stakeholders were used for the development of the CCA framework in an Indonesian context.FindingsThe study identified that the integration of CCA in PAM in Indonesia requires the incorporation of nine key elements. These are as follows: recognition of climate change; risk management and insurance schemes for assets; integrated asset management and planning; asset use and knowledge; reliable, accessible and understandable data set on climate change; leadership, government commitment and incentives; involvement of research and private entities; community engagement; and coordination of relevant agencies.Research limitations/implicationsThis paper informed only the key elements required on the development of framework which integrate CCA in PAM.Practical implicationsThe integration of CCA to a PAM framework will support the development of policies and procedures for better-informed decisions.Social implicationsThe framework increases opportunities for stakeholders and community engagement in policy development and decision making in relation to CCA for public assets.Originality/valueThis paper synthesises CCA and PAM using knowledge from the three levels of governments in Australia and Indonesia. CCA and PAM groups work separately in Indonesia and integration will reduce climate change risks and improve decision making in PAM.

Individual investor attention to stock split and the disposition effect

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Wendy Kesuma ◽  
Irwan Adi Ekaputra ◽  
Dony Abdul Chalid
Keyword(s):  
Stock Returns ◽  
Private Information ◽  
Stock Exchange ◽  
Stock Splits ◽  
Disposition Effect ◽  
Individual Investors ◽  
Investor Attention ◽  
Content Type ◽  
Stock Split ◽  
The Impact

PurposeThis paper investigates whether individual investors are attentive to stock splits and whether higher split ratios (stronger private information signals) reduce the disposition effect.Design/methodology/approachThis study employs stock split events and transaction data in the Indonesia Stock Exchange (IDX) from January 2004 to December 2017. The authors measure individual investors' attention using buy-initiated trades. To test the effect of split signal on disposition effect, the authors regress individual investors' sell-initiated trades on past stock returns.FindingsUnlike Birru (2015), the authors find that individual investors are attentive to stock splits, especially when stock split ratios are high. In turn, stock splits tend to weaken the disposition effect. The higher the stock split ratios, the weaker the disposition effect.Research limitations/implicationsThis study has a limitation in that the authors exclude all stock splits with dividend events around the split date. These stock splits cover 37% of all splits in Indonesia.Practical implicationsPractically, individual investors should look for stock-related information to reduce disposition bias.Originality/valueTo the best of authors’ knowledge, this study is the first to test individual investors' attention on stock splits based on their buy-initiated trades. This study is also the first to test the impact of stock split ratios on the disposition effect reduction. This study's findings enrich the scant literature on individual investors' attention and how to reduce their disposition effect bias.

Impact of behavioral factors on investors’ financial decisions: case of the Egyptian stock market

2019 ◽  
Vol 12 (1) ◽  
pp. 30-55 ◽  
Author(s):  
Noura Metawa ◽  
M. Kabir Hassan ◽  
Saad Metawa ◽  
M. Faisal Safa
Keyword(s):  
Stock Market ◽  
Behavioral Finance ◽  
Investor Sentiment ◽  
Investment Decisions ◽  
Demographic Characteristics ◽  
Individual Investors ◽  
Herd Behavior ◽  
Behavioral Factors ◽  
Content Type ◽  
Positive Effects

Purpose This paper aims to investigate the relationship between investors’ demographic characteristics (age, gender, education level and experience) and their investment decisions through behavioral factors (sentiment, overconfidence, overreaction and underreaction and herd behavior) as mediator variables in the Egyptian stock market. Design/methodology/approach This paper collects data from a structured questionnaire survey carried out among 384 local Egyptian, foreign, institutional and individual investors. This paper used a partial multiple regression method to analyze the effect of investors’ demographic characteristics on investment decisions through behavioral factors as the mediator variable. Findings Investor sentiment, overreaction and underreaction, overconfidence and herd behavior significantly affect investment decisions. Also, age, gender and the level of education have significant positive effects on investment decisions by investors. Experience does not play a significant role in investment decisions, but as investors gain experience, they tend to overlook the emotional factors. Practical implications The findings of this paper would help to understand common behavioral patterns of investors and indicate a path toward the growth of the Egyptian stock market. Originality/value There is a lack of research in behavioral finance covering Middle East and North African markets. This paper attempts to fulfill the gap by analyzing behavioral factors in the Egyptian market.

scholarly journals Asset management in public DB and non-DB Pension Plans

2015 ◽  
Vol 15 (4) ◽  
pp. 379-406 ◽  
Author(s):  
JAMES FARRELL ◽  
DANIEL SHOAG
Keyword(s):  
Asset Management ◽  
Nationwide Survey ◽  
Pension Plans ◽  
Individual Investors ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Data Set ◽  
Management Fees ◽  
Asset Class ◽  
State And Local

AbstractState and local pension plans are increasingly moving from the traditional defined benefit (DB) model to non-DB models that generally allow for participant-directed investment. This shift has important implications for the management of the more than US$3 trillion in assets held to finance public employee retirement benefits. To investigate these implications, we introduce new data from a nationwide survey of public DB and non-DB plans and a unique data set on thousands of individual investors in the state of Florida's defined contribution (DC) plan. Using these sources, we explore how participant involvement in the public sector affects the distribution of asset class allocations, management fees, investment outcomes, and portfolio rebalancing at both the individual and aggregate levels. We found that there is little difference between the DB and non-DB plans in terms of asset mix, returns, and fees, except that DB plan have greater access and allocations to alternative investments. We also found that while the average individual DC plan participant allocated their asset similarly to the DB plan, black females and older white males, on average, invested on opposite tails of the risk spectrum.

Post-crisis bank behavior: lessons from Mercosur

2016 ◽  
Vol 11 (4) ◽  
pp. 584-606 ◽  
Author(s):  
Montfort Mlachila ◽  
Sarah Sanya
Keyword(s):  
Risk Taking ◽  
Global Financial Crisis ◽  
Lessons Learned ◽  
Data Set ◽  
Macroeconomic Factors ◽  
Content Type ◽  
Credit Supply ◽  
Novel Approach ◽  
Bank Behavior ◽  
The Impact

Purpose The purpose of this paper is to answer one important question: in the aftermath of a systemic banking crisis, can the expected deviations in credit supply, liquidity, and other bank characteristics become entrenched in that they do not converge back to “normal”? Design/methodology/approach Using a panel data set of commercial banks in the Mercosur during the period 1990-2006, the authors analyze the impact of crises on four sets of financial indicators of bank behavior and outcomes – profitability, maturity preference, credit supply, and risk taking. The authors employ convergence methodology – which is often used in the growth literature – to identify the evolution of bank behavior in the region after crises. Findings A key finding of the paper is that bank risk-taking behavior is significantly modified leading to prolonged reduction of intermediation to the private sector in favor of less risky government securities and preference for high levels excess liquidity well after the crisis. This can be attributed to the role played by macroeconomic and institutional volatility that has nurtured a relatively high level of risk aversion in banks in the Mercosur. Originality/value To the best of the authors’ knowledge, using convergence methodology is a relatively novel approach in this area. An added advantage of using this approach over others currently used in the literature is that the authors can empirically quantify the rate of convergence and the institutional and macroeconomic factors that condition the convergence. Moreover, the methodology allows one to identify – in some hierarchical order – factors that condition persistent deviation from “normality.” The lessons learned from the Mercosur case study are useful for countries that suffered systemic banking crises in the aftermath of the global financial crisis.

Overconfidence and credit risk-taking in microfinance institutions: a cross-regional analysis

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Marwa Fersi ◽  
Mouna Boujelbène
Keyword(s):  
Credit Risk ◽  
Risk Taking ◽  
Regional Analysis ◽  
Microfinance Institutions ◽  
Negative Consequences ◽  
Loan Loss ◽  
Data Set ◽  
Content Type ◽  
Loan Officers ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of loan officers’ overconfidence on risk-taking decision and solvency performance measured by z-scores in the context of Islamic and conventional microfinance institutions (MFIs). Design/methodology/approach A random effect generalized least square regression was applied to examine the effect of overconfidence on credit risk-taking. The data set covers 326 conventional MFIs and 57 Islamic MFIs in six different regions over the period of 2005–2015. Findings Overconfidence proxies have shown through high loan growth, low-interest margin and loan loss provision reveal negative consequences on risk-exposures for both MFIs averagely. The loan officer’s overconfidence is significantly and positively related to the risk-taking decision, and thus, a lower loan portfolio quality. Besides, loan officers’ risk-taking behaviour harms these institutions’ solvency performance. Originality/value This paper makes an initial attempt to evaluate the effect of overconfidence behavioural bias on risk-taking decisions and its implication on the MFIs solvency and sustainability.

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