What motivate investors to sell? Evidence from China's stock market.

摘要

Using a sample of investor trade file in the Chinese Mainland between 1998 and 2000, the paper conducts an extensive study on disposition effect of the Chinese investors. Disposition effect is defined as the tendency of investors to sell winning stocks earlier and hold on to losing stocks longer (Shefrin and Statman, 1985). Empirical results of the paper show that the Chinese investors exhibit a stronger disposition effect than their counterparts in the developed markets. In general, the paper makes the following contributions to existing literature: (1) Methodology wise, it measures disposition effect on all trades instead of on net daily trades used by Odean (1998) and others. (2) The paper examines the investor heterogeneity in disposition effect, which is an area not well explored by behaviorists so far. It documents that small and less experienced investor, low book-to-market portfolio, and less diversified portfolio generally show stronger disposition in sell trades. It shows that disposition effect is not derived from contrarian trading strategy, neither is it supported by rational expectation hypothesis. (3) The paper expands the study on the performance of investors influenced by disposition effect. It measures not only return at sell and return post sell on a particular stock but also the overall portfolio performance of investor. It concludes that disposition effect is value reducing. (4) Using logistic regression analysis, the paper explores the difference between stock return and absolute return in motivating stock sell, which is another under-explored area in behavioral finance. It finds that the sell vs. hold decision of investor with weak disposition is mainly affected by absolute value of stock return. Whenever stocks are in deep gain or in deep loss, they tend to keep stocks in portfolio. For investors with strong disposition, their decision is heavily influenced by actual value of stock return, as predicated by disposition effect.