A Random Utility Model for Shareholders Capturing the Disposition Effect

Alfred Ka Chun Ma and Justina Yuen Ki Cheung
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Alfred Ka Chun Ma: CASH Axiom Capital Limited, Hong Kong
Justina Yuen Ki Cheung: J.P. Morgan, Hong Kong

International Journal of Applied Behavioral Economics (IJABE), 2015, vol. 4, issue 2, 1-15

Abstract: This work proposes a random utility model for individual trading decision in the spirit of prospect theory. This model differs from those in the literature in that empirical data of stock price and volume can be incorporated. The paper tests the model with historical data from the NYSE TAQ database. This model provides one more alternative to link prospect theory and the disposition effect. Simulation results show that this model consistently predicts the disposition effect under all circumstances.

Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:igg:jabe00:v:4:y:2015:i:2:p:1-15

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