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Portfolio Management and Disposition Effect Empirical Evidence From Pakistan

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  • Muhammad Wajid, Raza

Abstract

Kahneman and Tversky’s approach to preference under uncertainty is aversion to loss realization. This paper is an attempt to highlight this phenomenon with a unique approach. In order to beat the market fund managers are required to manage their portfolio at regular intervals. The tendency to sell the winners too early and ride the losers for long “disposition effect” can affect the Management decision of fund managers. This paper investigates the mediating role of disposition effect between mental accounting, aversion to regret, self control and portfolio Management. For this purpose we use the extended version of Shefrin and Statman framework and include Dyl’s tax consideration and Fama and French style tilts as controlling variables. In order to provide empirical evidence survey has been conducted from mutual fund managers. CFA and Cronbach’s alpha is used to test the reliability of the instrument. AMOS is used to test the structure equation model for disposition effect and portfolio Management. Results confirmed that disposition effect plays significant role of mediator between mental accounting, aversion to regret, self control and portfolio Management. However tax consideration has direct loading on forward Management. It means that disposition effect plays significant role in decisions of fund managers, however investors are aware of tax consideration

Suggested Citation

  • Muhammad Wajid, Raza, 2013. "Portfolio Management and Disposition Effect Empirical Evidence From Pakistan," MPRA Paper 48371, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:48371
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    File URL: https://mpra.ub.uni-muenchen.de/48371/1/MPRA_paper_48371.pdf
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    References listed on IDEAS

    as
    1. Schlarbaum, Gary G & Lewellen, Wilbur G & Lease, Ronald C, 1978. "Realized Returns on Common Stock Investments: The Experience of Individual Investors," The Journal of Business, University of Chicago Press, vol. 51(2), pages 299-325, April.
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    3. Thaler, Richard H & Shefrin, H M, 1981. "An Economic Theory of Self-Control," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 392-406, April.
    4. repec:bla:jfinan:v:53:y:1998:i:5:p:1775-1798 is not listed on IDEAS
    5. Keim, Donald B., 1983. "Size-related anomalies and stock return seasonality : Further empirical evidence," Journal of Financial Economics, Elsevier, vol. 12(1), pages 13-32, June.
    6. Fama, Eugene F & French, Kenneth R, 1995. "Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-155, March.
    7. Dyl, Edward A, 1977. "Capital Gains Taxation and Year-End Stock Market Behavior," Journal of Finance, American Finance Association, vol. 32(1), pages 165-175, March.
    8. Constantinides, George M, 1983. "Capital Market Equilibrium with Personal Tax," Econometrica, Econometric Society, vol. 51(3), pages 611-636, May.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Disposition effect. Portfolio Management. Mental accounting. Aversion to regret. Self control;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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