Behavioral Finance and Disposition Effect

Investors sell winning stocks more frequently than losing ones.

In mutual funds, investors sell losing funds more frequently than winning ones, contrary to the disposition effect seen in stocks.

Increased manager salience enhances the reverse-disposition effect, encouraging investors to sell losing funds.

<p>In passively managed funds, the reverse-disposition effect weakens, aligning behavior more closely with stocks.</p> Signup and view all the answers

<p>Cognitive dissonance drives both effects, as it increases conflict between beliefs about investment decisions.</p> Signup and view all the answers

<p>Noise trader risk leads to increased volatility and prolonged price deviations due to speculative activity by irrational investors.</p> Signup and view all the answers

<p>Sluggish adjustment refers to the delays in market corrections due to high implementation costs and market frictions that limit arbitrage.</p> Signup and view all the answers

<p>Negative stubs represent clear evidence of market inefficiencies and a deviation from the law of one price, indicating that similar assets trade at different prices.</p> Signup and view all the answers

<p>Short-sale costs and institutional frictions act as practical constraints that prevent arbitrageurs from effectively correcting mispricing.</p> Signup and view all the answers

<p>Individuals with lower experienced stock returns exhibit lower risk tolerance and reduced participation in the stock market.</p> Signup and view all the answers

<p>Recency bias refers to the tendency to give more weight to recent experiences when making financial decisions.</p> Signup and view all the answers

<p>Market segmentation limits arbitrage activity, creating fragmented markets where irrational investors can drive prices away from fundamentals.</p> Signup and view all the answers

<p>Institutional investors were the primary drivers of the price run-up in technology stocks, accounting for 63.6% of purchases.</p> Signup and view all the answers

<p>Individuals became major buyers post-burst, accounting for 49% of tech purchases while displaying poor timing.</p> Signup and view all the answers

<p>Hedge funds, independent investment advisors, and mutual funds were the most aggressive buyers.</p> Signup and view all the answers

<p>Institutions began coordinated selling as individuals accelerated their buying during the peak.</p> Signup and view all the answers

<p>Institutional buying led to larger post-peak reversals in returns, particularly for the largest firms.</p> Signup and view all the answers

<p>Institutions targeted high-price-to-sales (P/S) ratio stocks, suggesting a speculative trading approach.</p> Signup and view all the answers

<p>Institutions reallocated capital to non-tech stocks post-burst, leaving individuals with depreciating assets.</p> Signup and view all the answers

<p>Rational arbitrageurs ride bubbles until a coordinated selling effort occurs.</p> Signup and view all the answers

<p>Institutions accounted for 63.6% of technology stock purchases.</p> Signup and view all the answers

<p>Institutional buying led to prices moving further away from fundamental values.</p> Signup and view all the answers

<p>Institutional behavior contributed to momentum by amplifying price trends rather than aligning with market fundamentals.</p> Signup and view all the answers

<p>The active participation of sophisticated investors in speculative trading during the bubble period undermines this assumption.</p> Signup and view all the answers

<p>Individual investors exhibited poor market timing by buying depreciating assets during the crash.</p> Signup and view all the answers

<p>The results challenge the assumption of market efficiency and highlight the destabilizing influence of sophisticated investors.</p> Signup and view all the answers

<p>Securitization agents increased their housing exposure by purchasing second homes and upgrading to more expensive properties.</p> Signup and view all the answers

<p>The overall housing portfolios of securitization agents performed better compared to those of control groups.</p> Signup and view all the answers

<p>Their behavior presented a challenge to the expectation that they would help correct market inefficiencies.</p> Signup and view all the answers

<p>Over-optimism and belief distortions were common among securitization agents during the bubble.</p> Signup and view all the answers

<p>Understanding speculative motives is crucial as it provides insight into how bubbles form and burst.</p> Signup and view all the answers

<p>Institutional investors engaged in active purchasing that fueled further price increases before mispricing was corrected.</p> Signup and view all the answers

<p>They highlight that beliefs and preferences are dynamic, influenced by experiences rather than static.</p> Signup and view all the answers

<p>It suggests that high market-to-book ratios drive merger waves and influence the acquirer-target relationship.</p> Signup and view all the answers

<p>Firm-specific deviations, sector-wide deviations, and long-run value to book.</p> Signup and view all the answers

<p>Overvalued firms typically acquire less overvalued firms during market or sector valuation waves.</p> Signup and view all the answers

<p>Rational target managers misinterpret high valuations as evidence of synergies, which can lead to misguided decisions.</p> Signup and view all the answers

<p>Stock-based transactions dominate during overvaluation waves while cash targets tend to be undervalued.</p> Signup and view all the answers

<p>Stock acquirers are generally more overvalued than cash acquirers, who seek undervalued targets.</p> Signup and view all the answers

<p>Short-term gains motivate target managers to accept overvalued stock transactions.</p> Signup and view all the answers

<p>The study tests Neoclassical Q Theory, Correlated Asymmetric Information (RKV), and Behavioral Theory.</p> Signup and view all the answers