Disposition Matters: Volume, Volatility and Price Impact of a Behavioral Bias / William N. Goetzmann, Massimo Massa.

Format:

Book

Author/Creator:

Goetzmann, William N.

Contributor:

National Bureau of Economic Research.

Massa, Massimo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9499.

NBER working paper series no. w9499

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Disposition Matters

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

In this paper, we estimate the behavioral component of the Grinblatt and Han (2002) model and derive several 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 of individual accounts over a six-year period in the 1990's in order to identify investors who are subject to the disposition effect. We then use their trading behavior to construct behavioral factors. We show that when the fraction of irrational' investor purchases in a stock increases, the unexplained portion of the market price of the stock decreases. We further show that statistical exposure to a disposition factor explains cross-sectional differences in daily returns, controlling for a host of other factors and characteristics. The evidence is consistent with the hypothesis that trade between disposition-prone investors and their counter-parties impacts relative prices.

Notes:

Print version record

February 2003.