Analysis for the Momentum of the Stock Leader in Taiwan – by Behavioral Finance Framework
Date Issued
2014
Date
2014
Author(s)
Lin, Wei-Yu
Abstract
The stock market in Taiwan is always in prosperity. Individual investors and institutional investors often keep their eyes on the fluctuations of the stock market so as to seize the opportunity for investment. The following chapters would be analyzed by behavioral finance framework, including prospect theory, mental accounting, disposition effect, short-term momentum and long-term reversals. When the individual investors are no longer rational and self-interest as economists had assumed, then it would be probable that they tend to make investment decisions based upon the mental states of their own. Owing to the interaction between prospect theory and mental accounting, individual investors would be inclined to “sell winners too early and ride losers too long”, which was defined as disposition effect. Meanwhile, the stock prices of the stock leaders would therefore be undervalued, leaving room for the institutional investors to invest on these undervalued ones. The phenomenon described above contributes to the following momentum of the stock leaders.
Subjects
Behavioral Finance
Stock Leader
Prospect Theory
Mental Accounting
Disposition Effect
Short-term Momentum
Long-term Reversals
Type
thesis
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