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Disposition Effect and Asset Pricing in an Emerging Stock Market

Muhammad Aftab, Ijaz Ur Rehman and Abolaji Daniel Anifowose
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Muhammad Aftab: Department of Finance and Banking, Faculty of Business and Accountancy, University of Malaya, Malaysia.
Ijaz Ur Rehman: Department of Management Sciences, COMSATS Institute of Information Technology, Lahore Campus, Pakistan.
Abolaji Daniel Anifowose: Department of Finance and Banking, Faculty of Business and Accountancy, University of Malaya, Malaysia.

International Journal of Economics and Empirical Research (IJEER), 2016, vol. 4, issue 6, 320-332

Abstract: Psychological factors influence and distort financial decision-making and asset valuation in the real world. However, conventional asset pricing model ignores such factors albeit incorporation of psychological factors can enhance the effectiveness of asset pricing. The disposition effect, which is one of the distortions present in the financial market yield significant implications. Disposition effect is a phenomenon where investors hold losing investment ‘too long’ and sell winning investment ‘too soon’. Purpose: This paper examines the disposition effect in the Karachi Stock Exchange (KSE) and investigates its role in asset pricing in the same market. Methodology: Regression approach is usedfor empirical purpose. Findings: The findings provide an evidence of a disposition effect in KSE and a quite interestingly show that the disposition effect reduces expected returns.Recommendations: Policy recommendations have been provided.

Keywords: Asset Pricing; Disposition Effect; Investor Behavior; KSE (search for similar items in EconPapers)
JEL-codes: D03 D80 G11 (search for similar items in EconPapers)
Date: 2016
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International Journal of Economics and Empirical Research (IJEER) is currently edited by Dr. Muhammad Shahbaz (PhD Applied Economics)

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