Disposition Effect on Investment Decision Making: Explanation of Regulatory-Focus Theory
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 suffe...
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id-langga.606752018-02-06T20:53:07Z http://repository.unair.ac.id/60675/ Disposition Effect on Investment Decision Making: Explanation of Regulatory-Focus Theory I Made Negara Sudirman Andry Irwanto, Drs MBA Ak Basuki, Drs.,M.Com(Hons).,PhD BF501-504.3 Motivation HG4551-4598 Stock exchanges 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. Springer International Publishing AG. 2017 Book Section PeerReviewed text en http://repository.unair.ac.id/60675/1/Basuki_Karya%20Ilmiah%20Tambahan%20006%20%28Cover%29.pdf text en http://repository.unair.ac.id/60675/2/Basuki_Karya%20Ilmiah%20Tambahan%20006%20%28Full%20Artikel%29.pdf text en http://repository.unair.ac.id/60675/19/Basuki_Peer%20Review%20%28Revisi%29%2007.pdf text en http://repository.unair.ac.id/60675/20/07-Basuki_Similarity%20Index_Disposition%20Effect%20on%20Investment%20Decision%20Making_%20Explanation%20of%20Regulatory-Focus%20Theory2.pdf I Made Negara Sudirman and Andry Irwanto, Drs MBA Ak and Basuki, Drs.,M.Com(Hons).,PhD (2017) Disposition Effect on Investment Decision Making: Explanation of Regulatory-Focus Theory. In: Selected Papers from the Asia-Pacific Conference on Economics & Finance (APEF 2016). Springer International Publishing AG., Singapore, pp. 19-29. ISBN 978-981-10-3565-4, 978-981-10-3566-1 (eBook) https://link.springer.com/book/10.1007/978-981-10-3566-1 https://doi.org/10.1007/978-981-10-3566-1 |
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BF501-504.3 Motivation HG4551-4598 Stock exchanges I Made Negara Sudirman Andry Irwanto, Drs MBA Ak Basuki, Drs.,M.Com(Hons).,PhD Disposition Effect on Investment Decision Making: Explanation of Regulatory-Focus Theory |
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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. |
format |
Book Section PeerReviewed |
author |
I Made Negara Sudirman Andry Irwanto, Drs MBA Ak Basuki, Drs.,M.Com(Hons).,PhD |
author_facet |
I Made Negara Sudirman Andry Irwanto, Drs MBA Ak Basuki, Drs.,M.Com(Hons).,PhD |
author_sort |
I Made Negara Sudirman |
title |
Disposition Effect on Investment Decision Making: Explanation of Regulatory-Focus Theory |
title_short |
Disposition Effect on Investment Decision Making: Explanation of Regulatory-Focus Theory |
title_full |
Disposition Effect on Investment Decision Making: Explanation of Regulatory-Focus Theory |
title_fullStr |
Disposition Effect on Investment Decision Making: Explanation of Regulatory-Focus Theory |
title_full_unstemmed |
Disposition Effect on Investment Decision Making: Explanation of Regulatory-Focus Theory |
title_sort |
disposition effect on investment decision making: explanation of regulatory-focus theory |
publisher |
Springer International Publishing AG. |
publishDate |
2017 |
url |
http://repository.unair.ac.id/60675/1/Basuki_Karya%20Ilmiah%20Tambahan%20006%20%28Cover%29.pdf http://repository.unair.ac.id/60675/2/Basuki_Karya%20Ilmiah%20Tambahan%20006%20%28Full%20Artikel%29.pdf http://repository.unair.ac.id/60675/19/Basuki_Peer%20Review%20%28Revisi%29%2007.pdf http://repository.unair.ac.id/60675/20/07-Basuki_Similarity%20Index_Disposition%20Effect%20on%20Investment%20Decision%20Making_%20Explanation%20of%20Regulatory-Focus%20Theory2.pdf http://repository.unair.ac.id/60675/ https://link.springer.com/book/10.1007/978-981-10-3566-1 https://doi.org/10.1007/978-981-10-3566-1 |
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