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The disposition effect and investment performance in the futures market
Author(s) -
Choe Hyuk,
Eom Yunsung
Publication year - 2009
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20398
Subject(s) - disposition effect , sophistication , futures contract , economics , financial economics , disposition , efficient market hypothesis , stock market , index (typography) , investment (military) , stock (firearms) , futures market , psychology , political science , politics , social psychology , social science , context (archaeology) , law , horse , sociology , world wide web , computer science , engineering , biology , paleontology , mechanical engineering
This study examines whether the disposition effect (DE), i.e., the tendency of investors to ride losses and realize gains, exists in the Korean stock index futures market. Using a unique database, we find strong evidence for the DE and explain this in terms of investor characteristics. We also investigate the effect that the disposition bias has on investment performance. There are four main findings. First, individual investors are much more susceptible to the DE than institutional and foreign investors. Second, sophistication and trading experience tend to reduce the DE. Third, the DE is stronger in long positions than in short positions. Finally, there is a negative relationship between the DE and investment performance. This result is consistent with Odean (1998, Journal of Finance , 53, 1775–1798), but contrasts with Locke and Mann (2005, Journal of Financial Economics , 76, 401–444) who find no evidence of any contemporaneous measurable costs associated with the DE. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:496–522, 2009