V-Shaped Disposition Effect, Stock Prices, and Post-Earnings-Announcement Drift: Evidence from Korea

Minki Kim, Toyoung Kim and Tong Suk Kim

Journal of Behavioral Finance, 2023, vol. 24, issue 3, 345-364

Abstract: This study investigates the impact of the V-shaped disposition effect on asset prices in the Korean stock market, which is characterized by a high proportion of retail investors. By utilizing a specified dataset containing stock-level information on the trading activities of different types of investors, we find evidence to support the presence of V-shaped net selling propensity in the Korean stock market. In addition, we find that net selling pressure has a positive effect on the cross-section of subsequent stock returns, and this relationship appears only when accounting for individual trading. Furthermore, this net selling propensity of retail investors delays the incorporation of good news into stock price, while helps stock price reflect its bad news. We show that good (bad) news lead to positive (negative) drifts in stock prices following earnings announcements in the presence (paucity) of investors exhibiting the V-shaped disposition.

Date: 2023
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DOI: 10.1080/15427560.2021.1975715

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