Selected Papers from the Asia-Pacific Conference on Economics & Finance (APEF 2016)

Abstract

The disposition effect is the tendency of investors to sell stocks early when the price increases and hold stocks longer when this price decreases. As a consequence, investors may lose opportunities to gain greater profits from a stock winner whose price continues to rise; in contrast, they can suffer greater loss when the stocks continue to decline. The disposition effect is a phenomenon widely studied in behavioral finance. There are two main competing theories attempting to explain this phenomenon: the prospect theory and the regret theory. Although both theories give a fairly comprehensive explanation, they fail to take into account the motivation of investors in making investment decisions. This paper seeks to make a critical review of both of the main theories as well as provide a new explanation related to the motivation of investors from the perspective of the regulatory-focus theory. Regulatory-focus theory explains that individuals can be categorized into two groups, i.e. the prevention group and the promotion group. Regulatory-focus theory adds a more specific explanation that the disposition effect is more likely to occur in the prevention rather than the promotion group. The explanation of the disposition effect based on regulatory-focus -is a novelty in this paper.

A study of prominence for disposition effect: a systematic review

“…The country-specific social norms have a different impact on the trading behavior of investors. Surya et al (2017) explained the disposition effect with the help of the regulatory focus theory. This theory categorizes the investors between the prevention group and promotion group.…”

“…We include the theories, models, arguments, reasons, etc., given by different authors' overtime to establish the existence of disposition effect. This study includes the very first literature on disposition effect given by Dyl (1977) to the most recent paper by Surya et al (2017).…”

“…It includes the behavior of individual investors, institutional investors and mutual fund managers.Design/methodology/approach -The authors have used the existing literatures from the various authors, who have studied the disposition effect in either real market or the experimental market. This paper includes literature over a period of 40 years, that is, Dyl, 1977, in the form of tax loss selling, to the most recent paper, Surya et al (2017). Some authors have used the PGR-PLR ratio for calculating the disposition effect in their study.…”

How is using of the Indonesian Banking Environmental Disclosure with GRI?

“…By considering environmental aspects in making business decisions, it can reduce the negative impact of the operating activities of financial institutions so that it can help corporate social responsibility efforts and achieve sustainability (Shaumya & Arulrajah, 2017). Therefore, through the initiation of green banking, the bank will introduce the concept of paperless and information technology-based banking services to existing and prospective customers and, on the other hand, seek to promote the role of the bank to become responsible corporate citizens for achieving sustainable development (Fernando & Fernando, 2017). The company's challenge in maintaining the company's image in society is the reason why a bank in Indonesia conducts social reporting (www.worldbank.org).…”