Mamduh M. Hanafi

An Experimental Study on Disposition Effect: Psychological Biases, Trading Strategies, and Assets Holding Time

Disposition effect is one phenomenon in behavioral finance that describes investor tendency to sell winner stocks too early and hold loser stocks too long. The purpose of this paper is to examine the disposition effect from investor perspective when they respond to short-run and long-run return in their stocks. Disposition effect will also be associated with momentum trading, contrarian trading, and investor holding time of the stocks. Using experimental research, we find that psychological biases as regret aversion and loss aversion can explain disposition effect. It is demonstrated by investors who behave as momentum trading when respond to short-run return and become contrarian trader when they react to long-run return. This existence of disposition effect is also supported by another experiment session showing that there is a holding time discrepancy between winner and loser asset owned by investor.

Trading Performance of Foreign and Domestic Investors: Evidence in Indonesia in the Crisis and Recovery Periods

This paper investigates relative trading performance of domestic vis-a-vis foreign investors in Indonesian market. We take advantage of unique data set in Indonesian market that codes foreign and domestic investors. We find that domestic investors outperform foreign investors in all transactions. However, in initiated trades, foreign investors tend to outperform domestic investors. Foreign advantage does not seem to deteriorate in the crisis period. Our result supports Agarwal et al. (2010). However, trading performance seems to be more complex, interacts with different periods (crisis and recovery) resulting in different trading performance.

Fixed Price and Book Building Methods Under Exogenous Environment: Evidence from Indonesia Stock Market

We compare fixed price and book building methods in Indonesia stock market. We take advantage of unique setting in Indonesia market: companies do not have choice on their IPO method. We believe that this exogenous setting provides cleaner results, relatively free from endogenous related problems. Contrary to mainstream IPO models prediction, we find that book building yields larger underpricing and larger volatility than fixed price method. We find positive relationships between underpricing and aftermarket volatility. We also find that individual trading drives volatility in fixed price method. Our results highlight the need for IPO models to incorporate more realistic conditions from the field.