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A Dynamic Variation of Risk Aversion Approach:
A Study of Momentum and Reversal Premiums
--Dorsaf Ben Aissia
This paper integrates dynamic loss aversion and individual narrow framing in the investor utility function. The paper
investigates investor behavior following the public announcement of earnings. To do this, the author optimizes the objective function of
investor preference and analyzes to what extent the preference function generates a differential of value premium between stocks after
the announcement of the firms' profits. Several simulations are used according to the different values considered for the
preference parameters. The results show that in the short run, negative information infiltrates financial markets slowly as the
adjustment coefficient of investor preference is below one. An important momentum premium is then noted. In the long run, reversal trends
in returns generated by the preference framework confirm that investors feel very upset after the release of successive earnings of
negative sign. In fact, losses that come after other losses are very painful for them as they have a dynamic loss aversion function.
© 2009 IUP. All Rights Reserved.
Measurement of Conformity to Behavior Finance Concepts
and Association with Individual Personality
--Ramesh Krishnan and Fatima Beena
Behavioral Finance is the study that links social and psychological concepts to investments. Studies have now shown that
investment is not purely a rational decision but has roots in social sciences, such as sociology and psychology. Many paradoxes that have
been unexplained by classical finance are now being deciphered using behavioral finance concepts. Since behavioral finance has
social-psychological roots, the tendency to behave as predicted by it must have personality dimensions. This paper attempts to measure
a tendency for behaving as per behavioral finance predictions and link it to personality. The authors have constructed a
measurement instrument from Shefrin's examples of behavioral finance and have used the `Big Five' as the personality measurement
instrument. The paper finds two dimensions of the tendency; each of them linked to experience and personality dimensions.
© 2009 IUP. All Rights Reserved.
Investment Behavior and the Indian Stock Market
Crash 2008: An Empirical Study of Student Investors
--Koustubh Kanti Ray
The year 2008 has been a year of global slowdown and slump for the global equity market, in general and stock markets of
India, in particular. During 2008, Sensex (BSE Index) fell down from 21,206 (Indian Historical High of Sensex) to 16,000 points in a
single month, i.e., in January 2008. In October 2008, it crossed the support level of 8,000 points. Weak global atmosphere coupled
with heavy selling by FIIs and hedge funds led to this market crash. Against this backdrop, this paper analyzes the investment
behavior of student investors. Furthermore, the purpose of the study is to identify the factors responsible for this crash and investigate
whether the investment objectives and factors influencing investment decision-making are different during and after the market crash.
This empirical study is based on a structured questionnaire directed towards the management students who invest and actively trade
in the equity market. The results obtained in the research suggest that the behavior of market participants during the speculative
bubble was to some extent unreasonable and that the composition of investments has changed as a consequence of market crash.
When compared the time period after the speculative bubble, information available from companies gained significance for all
investors. This specifies an increase in the importance of fundamental data of the companies after the crash than during the speculative
bubble, when intuition and other unclear valuation methods seemed to have influenced investments to a greater extent.
© 2009 IUP. All Rights Reserved.
A Bayesian Analysis of Lunar Effects
on Stock Returns
--Shu-Ing Liu and Jauling Tseng
Biological, psychological and medical evidence widely suggests that the lunar phases may affect human behavior and mood.
This suggestion motivates this study of the relationship between lunar phases and stock returns. Relevant papers indicate that lunar
cycle effects do have an effect on stock returns. They indicate that the mean daily stock returns are lower near the full moon and
higher near the new moon days. This paper further investigates the association between the lunar phases and daily stock returns
by using a two-regime autoregressive model with a GARCH(1,1) innovation. Rather than only examining the average daily
returns, the discussion will be extended in three directions: the average daily returns, the correlation between consecutive daily returns,
and the GARCH volatility. The Bayesian approach will be applied to the daily stock returns of 12 countries, including the G7
markets and five emerging markets in Asia. In general, the statistical results indicate the existence of lunar effects on daily stock
returns, although different patterns are shown by the G7 markets and some of the discussed Asian markets. In particular, the
autocorrelation for consecutive daily returns is significantly different, according to both the lunar phases and the diverse structures of the
various stock markets. Furthermore, for some of the G7 markets, the volatility of the stock returns changes according to different lunar
phases; higher volatility in the full moon period. In summary, the evidence is consistent and supports the popular belief that lunar
phases do affect human financial behavior.
© 2009 IUP. All Rights Reserved.
An Analysis of the Behavior of Teaching Community
Towards Consumption: A Case Study
--Ananthapadhmanabha Achar
It is widely acknowledged in the literature of household economics that economic behavior will have
a strong influence on work efficiency, and the degree of influence would vary from profession to profession and over the time.
Economic attitudes are generally explained by the consumption patterns, savings and investments. Attitude of teachers towards
consumption, saving and investment would reflect their economic behavior, which would influence their profession, and in turn on the
education system. Human Resource Development perspective focuses on many ways in which consumption of goods and services affect
people's life. From such perspective, consumption is a means to human development. Its significance lies in enlarging people's capabilities
to live long and live well. Consumption opens opportunities without which a person would be left in human poverty. Research in
the aspect of important stakeholder assumes significance in the field of educational reforms. Against this backdrop, this study
focuses on the consumption behavioral patterns of primary, high school, college and university teachers in Udupi District of Karnataka.
The main purpose of this study is to diagnose the attitude and behavior of teachers towards consumption, and to understand the
resultant economic behavior and its implications.
© 2009 IUP. All Rights Reserved.
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