Portfolio Management and Disposition Effect Empirical Evidence From Pakistan

Muhammad Raza ()

MPRA Paper from University Library of Munich, Germany

Abstract: Kahneman and Tversky’s approach to preference under uncertainty is aversion to loss realization. This paper is an attempt to highlight this phenomenon with a unique approach. In order to beat the market fund managers are required to manage their portfolio at regular intervals. The tendency to sell the winners too early and ride the losers for long “disposition effect” can affect the Management decision of fund managers. This paper investigates the mediating role of disposition effect between mental accounting, aversion to regret, self control and portfolio Management. For this purpose we use the extended version of Shefrin and Statman framework and include Dyl’s tax consideration and Fama and French style tilts as controlling variables. In order to provide empirical evidence survey has been conducted from mutual fund managers. CFA and Cronbach’s alpha is used to test the reliability of the instrument. AMOS is used to test the structure equation model for disposition effect and portfolio Management. Results confirmed that disposition effect plays significant role of mediator between mental accounting, aversion to regret, self control and portfolio Management. However tax consideration has direct loading on forward Management. It means that disposition effect plays significant role in decisions of fund managers, however investors are aware of tax consideration

Keywords: Disposition; effect.; Portfolio; Management.; Mental; accounting.; Aversion; to; regret.; Self; control (search for similar items in EconPapers)
JEL-codes: G32 G39 (search for similar items in EconPapers)
Date: 2013-07-16
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