Herding and the Thin Trading Bias in a Start-Up Market: Evidence From Vietnam

-- Vasileios Kallinterakis

Research in behavioral finance has revealed the significant presence of herd behavior in emerging capital markets. Although the latter are typified by substantial levels of thin trading, its impact over the measurement of herding has been the subject of very little attention. This paper addresses this issue in the context of the Vietnamese market and the results indicate that correcting for thin trading leads to the depression of the herd's significance. The study findings are suggestive of thin trading introducing a bias over herding estimations which the study interprets through the existing literature evidence related to the illiquid structures of emerging markets.

© 2009 IUP. All Rights Reserved.

Impact of Investors' Lifestyle on Their Investment Pattern: An Empirical Study

-- Sushant Nagpal and B S Bodla

In the financial services industry, an acceptance of demographics as the total basis of marketing strategy means an acceptance of the fact that affluent individuals each earning the same income and living in similar homes in the same area have the same financial needs. The individuals may be equal in all aspects, may even be living next door, but their financial planning needs are very different. In this context, demographics alone no longer suffice as the basis of segmentation of individual investors. It is by using lifestyles or psychographics along with demographics that synergism between investors can be generated. In fact, an investor-driven marketing strategy necessitates an understanding of the demographic, socioeconomic and lifestyle characteristics of the investors. The present study is an attempt to bring out lifestyle characteristics of the respondents and their influence on investment preferences. The study concludes that investors' lifestyle predominantly decides the risk taking capacity of investors.

© 2009 IUP. All Rights Reserved.

Disposition Effect and Momentum: Prospect Theory and Mental Accounting Framework

-- Mouna Boujelbène Abbes, Younès Boujelbène and Abdelfettah Bouri

The study examines whether the disposition effect, defined as the tendency of investors to ride losses and realize gains, allows return predictability and momentum in stock prices. Using French stocks quoted over the period 1995-2004, the study estimates the Grinblatt and Bing (2005) measure for unrealized capital gains (losses) based on past prices and share volume. By performing double sorts both on past one-year returns and the capital gains overhang variable, the study finds that holding past returns constant, the average returns of portfolios increase monotonically with their capital gains overhang quintile. Based on cross-sectional Fama-MacBeth (1973) regressions, the study notes that the capital gains overhang appears to be the key variable that generates the profitability of a momentum strategy. Momentum effect vanishes since this capital gains variable is considered as a regressor along with past returns and volume to expect future returns.

© 2009 IUP. All Rights Reserved.

Rational Actors and Balancing Markets: A Game-Theoretic Model

-- Thomas Rupp

Guided by Game theory, this study develops a model to explain the influence of the balancing market on trading strategies in energy markets—how the prices on the balancing market drive power trading. The study derives explicit solutions for a specific model in which the error distributions and pricing functions are given. The most interesting conclusions are the unique existence of an equilibrium and that no participant acts contrary to the aggregate market (either all market participants buy or sell additional power) and properly normalized, all strategies are equal. Furthermore, the aggregate `strategic' power is a stochastic process varying around its own variance.

© 2009 IUP. All Rights Reserved.