The Disposition Effect and Momentum: Evidence from Thai Stock Market
Post by MSF Chula at Friday, 15 September 2017 11:42 AM

This study aims to examine whether the disposition effect, derived by prospect
theory and mental accounting, is a driver for the momentum effect in Thai Stock
Market. By using Grinblatt and Han (2005) approach, this study hypothesizes that the
disposition effect creates a spread between market price and fundamental value. After
that, when market price tries to converge to fundamental value, the momentum effect
will arise. As the data from January 2009 to December 2016, the results show that the
disposition effect captured by a variable proxying for unrealized capital gains and losses
(capital gains/losses overhang) is the main variable creating the profitability in
momentum strategy. However, the results are not robust across the market. Particularly,
they are consistent in small-capitalization stocks but not in large-capitalization stocks.
The rationale behind this is that market prices in the large-capitalization stocks are
mostly reflecting their own fundamental value. Therefore, the momentum effect will
not arise in the beginning. Overall, this study supports Grinblatt and Han (2005) model
as well as the results in the U.S. market.

Last updated at Friday, 15 September 2017 11:42 AM