Disposition effect at the market level: evidence from Indian stock market
ISSN: 1940-5979
Article publication date: 30 September 2019
Issue publication date: 12 June 2020
Abstract
Purpose
The purpose of this paper is to test the disposition effect at market level and propose an appropriate reference point for testing disposition at market level.
Design/methodology/approach
This is an empirical study conducted on 500 index stocks of NSE500 (National Stock Exchange). Winning and losing days for each stock are calculated using 52-week high and low prices as reference points. To test disposition effect, abnormal trading volumes of stocks are regressed on their percentage of winning (losing) days. Further using ANOVA, the difference between mean of percentage of winning (losing) days of high abnormal trading volume deciles and low abnormal trading volume deciles is tested.
Findings
Results show that a stock’s abnormal trading volume is positively influenced by the percentage of winning days whereas percentage of losing days show no such effect. Findings are consistent even after controlling for volatility and liquidity. ANOVA results show the presence of high percentage of winning days in higher deciles of abnormal trading volumes and no such pattern in case of losing days confirms the presence of disposition effect. Further an ex post analysis indicates that disposition prone investors accumulate losses.
Originality/value
This is the first study, which proposes the use of 52-week high and low prices as reference points to test the market-level disposition effect. Findings of this study enhance the limited literature available on disposition effect in emerging markets by providing evidence from Indian stock markets.
Keywords
Citation
Bharandev, S. and Rao, S.N. (2020), "Disposition effect at the market level: evidence from Indian stock market", Review of Behavioral Finance, Vol. 12 No. 2, pp. 69-82. https://doi.org/10.1108/RBF-12-2018-0132
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited