A series of experimental analyses into the Disposition Effect and its manifestations among South African investor teams
Date
2023
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Witwatersrand, Johannesburg
Abstract
In behavioural finance literature, there is a significant amount of both empirical and experimental evidence to suggest that prior outcomes impact investment decisions through cognitive biases which most (if not all) human investors succumb to. Among the most pervasive of these biases is the disposition effect, which manifests as the tendency of the investor to sell winning stocks too soon and hold on to losing stocks for too long (Shefrin and Statman, 1985). Critically, the disposition effect is understood to lead to suboptimal portfolio returns (i.e., suboptimal levels of investor welfare). While there have been several studies in other emerging markets, studies remain few in Africa and do not address some of the important issues underpinning the intensity and nature of the disposition effect among African investors. This thesis responds to this gap by designing and analysing several field experiments which explore causal relationships between psycho-social, public health-related, and socio-political factors and the emergence, prevalence, and intensity of the disposition effect among South African university student investor teams participating in the 2019, 2020, and 2021 runs of the Johannesburg Stock Exchange (JSE) Investment Challenge. The thesis is organised into three experimental studies, each speaking to specific theme/s that form the research’s core objective while employing unique data and sound econometric techniques known to be relevant to experimental analysis in finance studies.
The first study in Chapter 2 of the thesis endeavours to determine (i) whether the disposition effect exists among South African investor teams, (ii) whether it is causally intensified by a set of psycho-social factors, and (iii) whether the disposition effect causally reduces investor welfare. Among the study’s main findings are that South African investor teams are susceptible to the disposition effect, and that their susceptibility to the bias causally attenuates their investor welfare. Furthermore, low female representation in an investor team is found to causally intensify the disposition effect, subsequently leading to a decrease in investor welfare. Using ii evidence from real-world observation, the study contributes to the literature on team gender diversity and investment decision-making, and – using Hofstede’s (2001) cultural dimensions – it offers a comprehensive account for how differences in culture may lead to differences in gender-related disposition effects across different nationalities. The study also introduces to the literature experimental evidence from the field that clearly demonstrates that – among South
African investor teams – a causal relationship exists (i) between female representation and the disposition effect, and (ii) between the disposition effect and investor welfare.
Description
A Doctoral Thesis submitted in fulfillment of the requirements for the degree of DOCTOR OF Philosophy (Management with specialisation in Finance) in the Wits Business School; Commerce, Law, & Management Faculty of The University of the Witwatersrand, Johannesburg 2023
Keywords
Instrumental Variables (IV) Estimation, Field Experiments, Investment decisions, Portfolio choice, Institutional investors, Behavioral Finance, UCTD
Citation
Shandu, Philani. (2023). The role of design houses [PhD thesis, University of the Witwatersrand, Johannesburg]. WireDSpace.https://hdl.handle.net/10539/40120