| Summary: | 碩士 === 國立中興大學 === 企業管理學系所 === 96 === Since Kahneman and Tversky (1979) proposed Prospect Theory, behavioral finance drew more attention and the researchers that started discussing the mental effects on investment decisions. From then on, several studies tried to prove the inter-relationship between mental effects. Due to the rarely work on this issue, we intend to analyze the causality between overconfidence and disposition effect and provide some directions for future research.
In this study, the method of the overconfidence coefficient and disposition coefficient to measure the level of overconfidence and disposition effect is based on Tsai (2006) and Lin (2003) who modified the disposition coefficient from Weber and Camerer (1998). We find out that individual investors at Taiwan stock market are overconfident and have the tendency to sell the winners too soon and hold the losers reluctantly. From the test of Granger causality, however, we only support that overconfidence will Granger cause disposition effect. In addition, overconfidence has a significant positive relationship with disposition effect during the whole periods, the bear-market period and the bull-market period. It means that when individual investors are overconfident, it will cause stronger disposition effect. Note that the level of significance of causality decreases with lag periods during the bull-market period, and the causality is the most significant at lag two periods during the bear-market period.
The results also show that individual investors are so overconfident that inducing the phenomenon of disposition effect during the whole periods, the bear-market period and the bull-market period. That means individual investors will overestimate their own capabilities and the private information they hold due to previous gains. In order to maintain the confidence, individual investors will choose to sell the profitable stocks as soon as possible to prove the gains coming from their own capabilities. They also hold the losing ones reluctantly to avoid admitting the biased judgements they made.
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