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1 – 10 of over 1000Jiaxin Duan, Yixin (Lucy) Wei and Lei Lu
This study aims to examine the behaviour of institutional and retail investors in response to news about industry leaders (peer firms) and to determine its impact on the stock…
Abstract
Purpose
This study aims to examine the behaviour of institutional and retail investors in response to news about industry leaders (peer firms) and to determine its impact on the stock prices of other firms (focal firms) within the same industry.
Design/methodology/approach
The study investigates the impact of peer news on investor behaviour of Chinese A-shares listed on the Shanghai and Shenzhen Stock Exchanges from 2010 to 2019. The media coverage of industry leaders is sourced from prominent Chinese online financial outlets and the Chinese Financial Press. Support vector machine is applied to identify the positive, neutral and negative news within the articles. The study uses event study and logistic regression to examine the effects of peer news on focal firms’ investor behaviour.
Findings
The results show that both good and bad news about leaders cause peers’ stock prices to increase initially, but then reverse within one quarter. Further analysis reveals that when leaders’ shares receive positive news coverage, institutional investors tend to exert excessive abnormal buying pressure on peers’ shares, resulting in overreactions. Conversely, retail investors do not actively trade on peers on leaders’ news day due to limited attention. In addition, the study shows that short-selling constraint inhibits bad news from reflecting in the stock prices.
Originality/value
The study highlights differences in investor behaviour. The finding that institutional investors tend to overreact more to peer firms’ news when focal firms are smaller and have a lower frequency of information disclosure supports the salient theory. This is consistent with the previous framework that suggests overreaction is more pronounced when it is difficult to combine external sources of information to evaluate the focal firms. In contrast, retail investors do not engage in active trading on peers on leaders’ news day due to the limited attention theory.
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In this study, we investigate what drives the MAX effect in the South Korean stock market. We find that the MAX effect is significant only for overpriced stocks categorized by the…
Abstract
In this study, we investigate what drives the MAX effect in the South Korean stock market. We find that the MAX effect is significant only for overpriced stocks categorized by the composite mispricing index. Our results suggest that investors' demand for the lottery and the arbitrage risk effect of MAX may overlap and negate each other. Furthermore, MAX itself has independent information apart from idiosyncratic volatility (IVOL), which assures that the high positive correlation between IVOL and MAX does not directly cause our empirical findings. Finally, by analyzing the direct trading behavior of investors, our results suggest that investors' buying pressure for lottery-like stocks is concentrated among overpriced stocks.
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Firda Nosita and Rifqi Amrulloh
The authors believe the COVID-19 pandemic has an impact on supply and demand. The potential decline in real sector performance leads to lower expectations of securities…
Abstract
The authors believe the COVID-19 pandemic has an impact on supply and demand. The potential decline in real sector performance leads to lower expectations of securities performance. The uncertainty of future performance can change investor behaviour. This study tried to gain insight into stock investor behaviour during the COVID-19 pandemic. The results showed that the majority of the investor realized and believed the pandemic would affect the stock market performance. Hence, they did not show herding behaviour and were very confident during the COVID-19 pandemic. The survey also indicates that investors tend to avoid risk rather than take the opportunity to buy at a lower price. Moreover, investors believe that the COVID-19 vaccine will soon be found, and the economy will return to normal. Government and self-regulated organizations (SRO) are responsible for making effective policies to convince the investors about the future prospect.
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Kwang-Jing Yii, Zi-Han Soh, Lin-Hui Chia, Khoo Shiang-Lin Jaslyn, Lok-Yew Chong and Zi-Chong Fu
In the stock market, herding behavior occurs when investors mimic the actions of others in their investment decisions. As a result, the market becomes inefficient and speculative…
Abstract
In the stock market, herding behavior occurs when investors mimic the actions of others in their investment decisions. As a result, the market becomes inefficient and speculative bubbles form. This study aims to investigate the relationship between information, overconfidence, market sentiment, experience and national culture, and herding behavior among Malaysian investors. A total of 400 questionnaires are distributed to bank institutions' investors. The survey design based on cross-sectional data is analyzed using the Partial Least Squares Structural Equation Model. The results indicate that information, market sentiment, experience, and national culture are positively related to herding behavior, while overconfidence has no effect. With this, the government should strengthen regulations to prevent the dissemination of misleading information. Moreover, investors are encouraged to overcome narrow thinking by expanding their understanding of different cultures when making investment decisions.
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Hsiang-Hsi Liu, Pi-Hsia Hung and Tzu-Hu Huang
This research examines stock traders' disposition effects and contrarian/momentum behavior in the Taiwan Stock Exchange (TWSE). Specifically, we first investigate disposition…
Abstract
This research examines stock traders' disposition effects and contrarian/momentum behavior in the Taiwan Stock Exchange (TWSE). Specifically, we first investigate disposition effects across all trader types and then examine the relationships between disposition effects, trader types, and order characteristics. Next, we explore contrarian and/or momentum behavior and analyze the relationships among the contrarian/momentum behavior, investor type, and order characteristics. Finally, the links among trader types, order characteristics, and investment performance are detected. This chapter yields the following findings. (1) Individual investors exhibit the strongest disposition effects compared to other investors. (2) Foreign investors, investment trusts, and individual investors tend to use large orders to sell loser stocks. (3) Investment trusts are inclined to be momentum traders, while individual investors tend to perform contrarian strategies. (4) Institutional aggressive and large orders perform better than individuals' orders. (5) The performance of foreign investors' selling decisions is better than that of retail investors.
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Although some research has been carried out on feedback trading in different asset classes, there have been few empirical investigations that consider both major and emerging…
Abstract
Purpose
Although some research has been carried out on feedback trading in different asset classes, there have been few empirical investigations that consider both major and emerging stock markets (Koutmos, 1997; Antoniou et al., 2005; Kim, 2009) stock index futures (Salm and Schuppli, 2010). In this study, the author examines positive/negative feedback trading in both developed-emerging-frontier-standalone (51) stock markets for 2010–2020 and sub-periods including COVID-19 period.
Design/methodology/approach
The hypothesis “feedback trading behaviour led the price boom/bust in the stock markets during the first quarter of COVID-19 pandemic” is tested by employing the Sentana and Wadhwani (1992) framework and using asymmetrical GARCH models (GJRGARCH, EGARCH) in accordance with the empirical literature.
Findings
The following conclusions can be drawn from the present study; (1) There is no evidence to support a significant distinction between developed, emerging, frontier or standalone markets or high/upper middle, lower middle income economies in the case of feedback trading. It is more likely to be a general phenomenon reflecting the outcomes of general human psychology (2) in the long term (2010–2020) based on the feedback trading results Asian stock markets appear to be far from efficiency.
Research limitations/implications
Stock markets are selected based on data availability.
Practical implications
Several inferences can be drawn about overall results. First, investors and portfolio managers should beware of their investment decisions during bearish market conditions where volatility is on the rise and also when there is a strong reaction to bad news/negative shocks in the market. Moreover, investing in Asia stock markets may require more attention since those markets are reputed to be more “idiosyncratic”, less reliant on economic and corporate fundamentals in their pricing. Moreover, the impact of foreign investors on stock market volatility and returns and weaker implementation of regulations also affect the efficiency of the markets (Lipinsky and Ong, 2014).
Originality/value
To the best of the author’s knowledge, most studies in the field of feedback trading in stock markets have only focused on a small sample of countries and second, the effect of COVID-19 uncertainty on the stock markets have not been addressed in the literature with respect to feedback trading. This paper fills these literature gaps. This study is expected to provide useful insights for understanding the instabilities in stock markets particularly under conditions of high uncertainty and to fill the gap in the literature by comparing the results for a large sample of countries both in the long term and in the pandemic.
Highlights for review
This study has shown that feedback trading is more prevalent in Asian stock markets in the long run in Europe, America or Middle East for the period 2010–2020.
Positive feedback traders generally dominated most of the stock markets during the early period of COVID-19 pandemic.
Another major finding was that the stock markets in Malaysia, Japan, the Philippines, Estonia, Portugal and Ukraine are dominated by negative feedback traders which may be interpreted as “disposition effect” meaning that they sell the “past winners”.
In Indonesia, New Zealand, China, Austria, Greece, UK, Finland, Spain, Iceland, Norway, Switzerland, Poland, Turkey, Chile and Argentina neither positive nor negative feedback trading exists even under uncertain conditions.
This study has shown that feedback trading is more prevalent in Asian stock markets in the long run in Europe, America or Middle East for the period 2010–2020.
Positive feedback traders generally dominated most of the stock markets during the early period of COVID-19 pandemic.
Another major finding was that the stock markets in Malaysia, Japan, the Philippines, Estonia, Portugal and Ukraine are dominated by negative feedback traders which may be interpreted as “disposition effect” meaning that they sell the “past winners”.
In Indonesia, New Zealand, China, Austria, Greece, UK, Finland, Spain, Iceland, Norway, Switzerland, Poland, Turkey, Chile and Argentina neither positive nor negative feedback trading exists even under uncertain conditions.
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Virgílio Vasconcelos Souza, Lucas Lopes Ferreira Souza, Oderlene Oliveira, Elnivan Moreira de Souza and Juliana Silva Costa
The purpose of this research is to analyze the influence of heuristics on Brazilian investors' behavior in the decision-making process.
Abstract
Purpose
The purpose of this research is to analyze the influence of heuristics on Brazilian investors' behavior in the decision-making process.
Design/methodology/approach
The authors apply the partial least squares structural equation modeling methodology. This sample is composed of 220 investors.
Findings
The heuristics of overconfidence and anchoring positively influence investors' decision-making, while loss aversion negatively influences it. The herd effect exhibits no influence. The results also support the idea that decision-making positively influences investors' performance. Investors feel secure in their attitudes regarding financial decision-making, even if their decisions are not always rational as they are affected by biases.
Originality/value
This article explains the influence of heuristics on investors' decision-making and performance in the Brazilian context during the COVID-19 pandemic.
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Muhammad Akhtar and Muhammad Umair Malik
The study aims to examine the relationship between personality traits and investor risk behavior of the individuals trading in stock markets. Furthermore, this study establishes…
Abstract
Purpose
The study aims to examine the relationship between personality traits and investor risk behavior of the individuals trading in stock markets. Furthermore, this study establishes the association of financial literacy on the relationship between personality traits and investor risk behavior.
Design/methodology/approach
The authors analyze cross-sectional survey method data by using moderated multiple regression analysis, a standard method of determining the moderation effect. PROCESS Model method has been used in this study to check the robustness of the results.
Findings
The findings reveal that personality traits significantly influence investor risk behavior and financial literacy modifies the fundamental relationships between personality traits and investor risk behavior. The findings also conclude that behavioral impact was predetermined by individuals' genetic traits and is influenced by financial literacy.
Research limitations/implications
The current study provides valuable insights for investors and adamant grounds for future research. The two-fold role of individuals' personalities in case of gains and losses can be of interest to the researchers in future.
Practical implications
Investors currently facing the complex financial choices which are far beyond the day-to-day financial advice. This study guides rational investment behavior for portfolio managers and investors for advanced investment options.
Social implications
Most of the prior literature is based on developed markets, whereas the current study focuses on less literate society (i.e. Pakistan) to protect the investors from scams and fraud. The current study supports the vital role of investors in the socio-economic development of emerging markets.
Originality/value
The authors believe this study expands the boundaries of personality theories, especially in the context of risk behavior and financial literacy. The study also contributes to advancing the personality theory trimmed with financial literacy and investor behavior while making important theoretical inroads for future research.
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This study aims to use a qualitative approach to explore and clarify the mechanism by which heuristic-driven biases influence the decisions and performance of individual investors…
Abstract
Purpose
This study aims to use a qualitative approach to explore and clarify the mechanism by which heuristic-driven biases influence the decisions and performance of individual investors actively trading on the Pakistan Stock Exchange (PSX). It also aims to identify how to overcome the negative effect of heuristic-driven biases, so that finance practitioners can avoid the expensive errors which they cause.
Design/methodology/approach
This study adopts an interpretative approach. Qualitative data was collected in semistructured interviews, in which the target population was asked open-ended questions. The sample consists of five brokers and/or investment strategists/advisors who maintain investors’ accounts or provide investment advice to investors on the PSX, who were selected on a convenient basis. The researchers analyzed the interview data thematically.
Findings
The results confirm that investors often use heuristics, causing several heuristic-driven biases when trading on the stock market, specifically, reliance on recognition-based heuristics, namely, alphabetical ordering of firm names, name memorability and name fluency, as well as cognitive heuristics, such as herding behavior, disposition effect, anchoring and adjustment, repetitiveness, overconfidence and availability biases. These lead investors to make suboptimal decisions relating to their investment management activities. Due to these heuristic-driven biases, investors trade excessively in the stock market, and their investment performance is adversely affected.
Originality/value
This study provides a practical framework to explore and clarify the mechanism by which heuristic-driven biases influence investment management activities. To the best of authors’ knowledge, the current study is the first to focus on links between heuristic-driven biases, investment decisions and performance using a qualitative approach. Furthermore, with the help of a qualitative approach, the investigators also highlight some factors causing an increased use of heuristic variables by investors and discuss practical approaches to overcoming the negative effects of heuristics factors, so that finance practitioners can avoid repeating the expensive errors which they cause, which also differentiates this study from others.
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Marija Vuković and Snježana Pivac
Investors' behavior in financial markets is often under the influence of various psychological and cognitive factors, as well as personality characteristics. This research…
Abstract
Purpose
Investors' behavior in financial markets is often under the influence of various psychological and cognitive factors, as well as personality characteristics. This research explores which behavioral factors and personality traits affect investment decisions and, consequently, investment performance.
Design/methodology/approach
A survey analysis was conducted on a sample of 310 investors in Croatia. Partial least squares structural equation modeling was used to obtain the results.
Findings
Overconfidence heuristic, prospect theory elements, emotions and stability and plasticity (as big two personality dimensions) positively affect investment decisions, while herding has a negative effect. Investment decisions, observed through the preference for long-term investments, consequently have a positive effect on the investment performance satisfaction.
Originality/value
This research proposes a unique comprehensive model of the effect of numerous different cognitive and psychological behavioral factors on investment decisions. Furthermore, the influence of investment decisions on investment performance is observed simultaneously. Understanding human behavior based on their personal characteristics can help investors to make better investment decisions. Advisors can learn from human behavior and guide their clients in the right direction when it comes to stock investment. Scientists will be able to replicate the model with other data and make comparative analyses.
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