Analysis on trading behavior of individual and institutional investors in Tehran Stock Exchange From the perspective of behavioral bias and factors affecting it

Subject Areas : Financial Knowledge of Securities Analysis

Naser  Jamshidi ¹ (Ph.D. Student in financial management, Faculty of Management and accounting, University of Shahid Beheshti, Tehran, Iran)
Hassan  Ghalibaf Asl ² (Associate Prof. in financial management, Faculty of Social and Economic Sciences,, University of Alzahra, Tehran, Iran)

Received: 2018-12-25 Accepted : 2019-04-20 Published : 2020-06-21

Keywords: Trading behavior, Overconfidence, Representativeness, disposition effect,

Abstract :

The aim of this study is to investigate the behavior of individual and institutional investors in Tehran Stock Exchange. For this purpose, we examined the portfolio statement of individual and institutional investors during a five-year period from 2012 to 2016. The result show that Investors’ behavior reflects some behavioral biases. Specifically, both individual and institutional investors tend to sell stocks that have appreciated in price, but not those that have depreciated in price (consistent with a disposition effect), although this tendency is more for individual investors. They also appear to believe that past returns are indicative of future returns (a representativeness bias), and their trading behavior shows that they are overconfidence. In the following, to investigate the effect of characteristics of investors on the cognitive errors, behavioral biases and trading error are investigated based on characteristics of investors.

References:

*      اصولیان، محمد و مریم صفری. (1394). فعالیت معاملاتی سرمایه‌گذاران؛ جنبه های رفتاری و شواهد تجربی، فصلنامه چشم انداز مدیریت مالی؛ 4 (11)، 52-27

*      بدری، احمد و احمد کوچکی. (1392). حجم معاملات و بازده سهام، شواهدی از بورس اوراق بهادار تهران بر اساس تحلیل مالی رفتاری، فصلنامه حسابداری مالی، 5 (18)، 24-1

*      بدری، احمد و ندا گودرزی. (1392). مالی رفتاری، سوگیری نماگری و متغیرهای بنیادی حسابداری: شواهدتی از بورس اوراق بهادار تهران، فصلنامه مطالعات تجربی حسابداری مالی، 11 (43)، 88-57

*      بدری، احمد و فؤاد فتح الهی. (1393). مومنتوم بازده، شواهدی از بورس اوراق بهادار تهران، فصلنامه دانش سرمایه‌گذاری، شماره 9، 20-1

*      جمشیدی، ناصر و حسن قالیباف اصل. (1397). بررسی تأثیر شخصیت سرمایه‌گذاران بر رفتار معاملاتی و عملکرد آنان؛ شواهدی از بورس اوراق بهادار تهران، فصلنامه تحقیقات مالی، 20 (1)، صص 90-75

*      سیف‌الهی، راضیه، کردلویی، حمیدرضا و نادر دشتی. (1394). بررسی مقایسه‌ای عوامل رفتاری در سرمایه‌گذاری دارایی‌های مالی، فصلنامه دانش سرمایه‌گذاری، 4 (15)، 52-33

*      فلاح پور، سعید و غلامرضا عبدالهی. (1390). شناسایی و وزن دهی تورش های رفتاری سرمایه‌گذاران در بورس اوراق بهادار تهران، فصلنامه پژوهشات مالی، 13 (31)، 12-99

*      قالیباف اصل، حسن، کردی، ملیحه و فاطمه اژدری. (1392). فرااعتمادی مدیران سرمایه‌گذاری و شاخص های ارزیابی عملکرد صندوق های سرمایه‌گذاری مشترک، فصلنامه راهبرد مدیریت مالی، 1 (1)، 22-1

*      غیور باغبانی، مرتضی و امید بهبودی. (1396). عوامل مؤثر در بروز رفتار سرمایه‌گذاران با رویکرد پدیدارنگاری، فصلنامه مدیریت دارایی و تأمین مالی، 5 (3)، 76-57

*      موسوی، محمود، صالحی، مهدی، شاکری، مریم و عسل بخشیان. (1394). سودآوری استراتژِی مومنتوم و تأثیر حجم معاملات سهام بر آن در بورس اوراق بهادار تهران، فصلنامه مهندسی مالی و مدیریت اوراق بهادار، شماره 25، 123-107

*      Agudeli, D., Byder, J., and Yepes, P. (2018). Performance and informed trading. Comparing foreigner, institutions and individual in an emerging stock market, Journal of international money and finance, 90, 182-203.

*      Barber, B.M. and T. Odean (2000). Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors, Journal of Finance, 55, 773-806.

*      Barber, B.M. and T. Odean (2001). Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment, Quarterly Journal of Economics, 116, 261-292.

*      Barber, B.M., T. Odean, and N. Zhu (2009). Do Retail Trades Move Markets? Review of Financial Studies, 22 (3). 151-186.

*      Barber, B.M. and T. Odean (2011), The Behavior of Individual Investors, Electronic copy available at: http://ssrn.com/abstract=1872211

*      Barberis, N., Huang, M., (2009). Preferences with frames: A new utility specification that allows for the framing of risks. Journal of Economic Dynamics and Control, 33, 1555–1576.

*      Chen, G., Kim, K., Nofsinger, J. and Rui, O. (2007), Trading Performance, Disposition Effect, Overconfidance, Representative Bias, and Experience of Emerging Market Investors, Journal of Behavioral Decision Making, 20, 425-451

*      Coval, J., & Shumway, T. (2005). Do behavioral biases affect prices? Journal of Finance, 60, 1–34.

*      Dhar, R., & Kumar, A. (2001). A non-random walk down the main street: Impact of price trends on trading decisions of individual investors. Working paper, International Center for Finance, Yale School of Management, New Haven, CT.

*      De Bondt, J.B., Thaler, R., (1995). Financial decision making in markets and firms: a behavior perspective, Handbooks of Operations Research and Management Science.

*      DeLong, J.B., Shleifer, A., Summers, L. H., &Waldmann, R. J. (1990). Noise trader risk in financial markets. Journal of Political Economy, 98, 703–738.

*      Dorn, D. and G. Huberman (2005), ‘Talk and action: What individual investors say and what they do’. Review of Finance 9, 437–481.

*      Fan, J.X., Xiao, J.J., (2005). A cross-cultural study in risk tolerance: comparing Chinese and Americans. SSRN Paper .

*      Feng, L., Seasholes, M.S., (2005). Do investor sophistication and trading experience eliminate behavioral biases in financial markets? Review of Finance, 9 (3), 305–351.

*      Frazzini, A. (2006). The disposition effect and underreaction to news. Journal of Finance, 61, 2017–2046.

*      Genesove, D., Mayer, C., (2001). Loss aversion and seller behavior: Evidence from the housing market. The Quarterly Journal of Economics, 116 (4), 1233–1260.

*      Gervais, S., & Odean, T. (2001). Learning to be overconfident. Review of Financial Studies, 14, 1–27.

*      Goetzmann, W.N., Kumar, A., (2008). Equity portfolio diversification. Review of Finance, 12 (2), 433–463.

*      Grinblatt, M., Keloharju, M., (2001). What makes investors trade? The Journal of Finance, 56 (3), 589– 616.

*      Grossman, Sanford J., and Joseph E. Stiglitz, (1980), On the impossibility of informationally efficient markets, American Economic Review, 70 (2), 393–408.

*      Heath, C., Tversky, A., (1991). Preference and belief: ambiguity and competence in choice under uncertainty. Journal of Risk Uncertain. 4 (3), 5–28.

*      Heath, C., Huddart, S., Lang, M., (1999). Psychological factors and stock option exercise. The Quarterly Journal of Economics, 114 (1), 601–627.

*      Henderson, V., (2012). Prospect theory, liquidation, and the disposition effect. Management Science, 58 (3), 445–460.

*      Hens, T., Vlcek, M., (2011). Does prospect theory explain the disposition effect? Journal of Behavioral Finance, 12 (4), 141–157.

*      Ivkovic, Z., C. Sialm, and S. Weisbenner (2008), Portfolio Concentration and the Performance of Individual Investors, Journal of Financial and Quantitative Analysis, 43 (1), 613-656.

*      Ji, L., & Zhang, Z. (2006). To buy or sell: Cultural differences in stock market decisions based on price trends. Working paper, Queen’s University, Kingston, Ontario.

*      Jin, L., Scherbina, A., (2011). Inheriting losers. The Review of Financial Studies, 24, 786–820

*      Korniotis, G., & Kumar, A. (2006). Does investment skill decline due to cognitive aging or improve with experience? Working paper, University of Notre Dame, South Bend, Indiana

*      Kyle, A.S., Ou-Yang, H., Xiong, W., (2006). Prospect theory and liquidation decisions. Journal of Economic Theory, 129, 273–288.

*      Li, X., Geng, Z., Subrahmanyam, A., and Yu, H. (2017). Do wealthy investors have an informational advantage? Evidence based on account classifications of individual investors, Journal of Empirical Finance, 44, 1-18

*      Locke, P., & Mann, S. (2005). Professional trader discipline and trade disposition. Journal of Financial Economics, 76, 401–444.

*      Nofsinger, J., & Sias, R. (1999). Herding and feedback trading by institutional and individual investors. Journal of Finance, 54, 2263–2295.

*      Odean., T.(1998), Are Investors Reluctant to Realize Their Losses? Journal of Finance, 5, 1775-1798.

*      Odean, T. (1999). Do Investors Trade too Much? American Economic Review, 89 (5), 1279-1298.

*      Prosad, J., Kapoor, S., Sengupta, J., Rouchoudhary, S. (2017), Overconfidence and Disposition Effect in Indian Equity Market: An Empirical Evidence, Journal of Global Business Review, 1 (3), 74-97

*      Shapira, Z., & Venezia, I. (2001). Patterns of behavior of professionally managed and independent investors. Journal of Banking and Finance, 25, 1573–1587.

*      Shefrin, H., Statman, M., (1985). The disposition to sell winners too early and ride losers too long: Theory and evidence. The Journal of Finance, 40, 777–790.

*      Shefrin, H. (2010), Behavioralizing Finance, research paper. 10-01: 1-161

*      Statman, M. (2010). The cultures of risk tolerance. SSRN Paper No.:1647086.

*      Tekce, B, Yılmaz., N. (2015). Are individual stock investors overconfident? Evidence from an emerging market, Journal of Behavioral and Experimental Finance, 5, 35–45

*      Vissing-Jørgensen, A. (2003). Perspectives on behavioral finance: Does ‘‘irrationality’’ disappear with wealth? Evidence from expectations and actions. NBER Macroeconomics Annual, 18, 139–194.

*      Witteloostujin, A., Muehlfeld, K. (2008), Trader personality and trading performance, Tjalling C. Koopmans Research Institute Discussion Paper Series 08-28, 1-44

*      Yates, J. F., Zhu, Y., Ronis, D. L.,Wang, D. F., Shinotsuka, H., & Toda,W. (1989). Probability judgment accuracy: China, Japan, and the United States. Organizational Behavior and Human Decision Processes, 43, 147–171.