tailieunhanh - Empirical research of disposition effects in Vietnam’s stock market

Empirical research of disposition effects in Vietnam’s stock market. This paper examines some cognitive biases of Vietnamese stock investors by ana-lyzing trading records for 1,201 accounts at a brokeragef irm. These investors tend to make poor trading decisions by selling good stocks and buy ing bad stocks. | Journal of Economics and Development Vol. 14, , August 2012, pp. 52 - 71 ISSN 1859 0020 Empirical Research of Disposition Effects in Vietnam’s Stock Market Nguyen Duc Hien National Economics University, Vietnam Email: hiennd@ Ngo Duy National Economics University, Vietnam Le Vu Australia’s National University, Australia Nguyen Ngoc Tram University of Bristol, UK Abstract This paper examines some cognitive biases of Vietnamese stock investors by analyzing trading records for 1,201 accounts at a brokerage firm. These investors tend to make poor trading decisions by selling good stocks and buying bad stocks. They demonstrate a significant reference to holding the losing stocks and selling the wining stocks which is known as the disposition effect. It provokes many implications for researchers, market practitioners and policy makers. Keywords: Disposition effect, extrapolation bias, prospect theory, behavioral finance. Journal of Economics and Development 52 Vol. 14, , August 2012 1. Introduction hurts the wealth of investor. It could not exist if market participants behaved in compliance with the efficient market hypothesis and the rationality assumption. Among the three psychological foundations of behavioral finance, emotional foundation plays an important role in explaining individual behavior. Emotion is sometimes argued to have a strong relationship with prospect theory (Kahneman and Tversky’s). “Fear” and “greed” are two major emotions of individuals found in financial markets. Recall the fact that many people buy lottery tickets, which is contradictory to loss aversion in terms of gains. Those people, at the same time, may buy insurance, which is contradictory to riskseeking in terms of loss. Buying the lottery is an exhibition of “greed”, expecting to get rich quickly while buying insurance shows “fear”. So, this example suggests that the nonlinearity of weighting function arises from emotion. In emotion-rich situations, people’s