Disposition effect

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Reference no: EM131623093

Disposition effect. The term disposition effect refers to investors' inclination to realize gains more quickly than losses. The first objective of this project will be to implement the algorithms and reproduce the results of the following paper:

A. Frazzini. The Disposition Effect and Underreaction to News. The Journal of Finance, 61(4):2017-2046, August 2006.

The essential idea of the trading strategy constructed in this paper is to buy (sell) a stock in response to positive (respectively, negative) news if most shareholders face a capital gain (respectively, loss). Data on mutual fund holdings is used to estimate the capital gains or losses faced by most shareholders. The second objective of the project will be to extend the paper's results to include the market data until the end of 2009.

Reference no: EM131623093

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