Decyzje

High Volatility Eliminates The Disposition Effect In A Market Crisis1

Dacey, Raymond

University of Idaho

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Abstrakt

The disposition effect is an effect whereby investors tend to sell winning stocks and tend to hold losing stocks. This inclination is detrimental for investment results. Dacey and Zielonka (2008) showed the impact of the probability of further stock price rise under low stock price volatility on the disposition effect. Specifically, they showed that under low volatility, in the case of a gain, the investor is more likely to sell the winner even if the probability of the further gain is high, whereas in the case of a loss, the investor is more likely to hold the loser even when the probability of a further gain is small. In this paper
we examined the disposition effect under high volatility. The general conclusion is that under high volatility, in the case of a gain, the investor behaves in the same way as for low volatility, whereas in the case of a loss, the investor is less and less likely to hold the loser as volatility increases. Thus, in the case of a loss under high volatility, the investor acts contrary to the disposition effect. This result explains the panic selling of stocks during a market collapse.

Metadane

Czasopismo Decyzje 
Numer 20 
Data wydania 12/2013 
Typ Article 
Język en
Paginacja 5-20
DOI 10.7206/DEC.1733-0092.9
ISSN 1733-0092
eISSN 2391-761X