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The Disposition effect and under reaction to news. March 24, 2010 Abdullah Al-Ashi Jungha Woo Muna Albasman Talha Yasin. -. Gt =. IBM MSFT. (When rolling periods is (+2) months)

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the disposition effect and under reaction to news

The Disposition effect and under reaction to news

March 24, 2010

Abdullah Al-Ashi

Jungha Woo

Muna Albasman

Talha Yasin

slide2

-

Gt =

  • IBM
  • MSFT

(When rolling periods is (+2) months)

JAN 2003 FEB 2003 MAR 2003 APR 2003 MAY 2003

  • IBM
  • GOOG
  • GOOG
  • DELL
  • GOOG
  • IBM

Top 20%

  • MSFT
  • DELL
  • JAVA
  • YHOO
  • MSFT
  • JAVA
  • JAVA
  • COST
  • CIT
  • PM
  • DELL
  • COST
  • PM
  • CIT
  • EXPE
  • COST
  • PM
  • EXPE
  • EXPE
  • YHOO
  • YHOO
  • CIT

Bottom 20%

Earning report dates

Sorting points

update i
Update I

Applied adjusted price and adjusted volume for Reference price, Capital gain overhang (Gt) computation

adjusted price = unadjusted prc/cum adjusting factor( dsf.cfacpr)

adjusted volume = unadjusted vol* cum vol adj factor ( dsf.cfacshr)

Used to compute correct reference price

updates ii
Updates II

Fixed incorrect capital gain overhang values

Due to incomplete CRSP mutual fund database, some mutual funds holding reports include 0 as total market value when its number of shares and stock price are both positive.

Corrected: Now, only 2 missing value exist out of millions of observations

update iii
Update III
  • Formed portfolio in terms of Gt, CAR using SAS and divided that into quintile.
  • Computed one month rolling portfolio
progress in matlab
Progress in MATLAB
  • Calculated holding period (1&2-months) returns with adjusted price
  • Calculated the 1&2-month portfolio excess return, regressed to get monthly alpha for each quintile
  • Running time was around 190 min for 1-month portfolio excess return calculation and around 120min for the 2-month portfolio excess return
assumption we ve made
Assumption we’ve made
  • For delisting events, we currently assumed 100% loss incurred
    • Technically, holding period return value can be refined by calculating delisting returns and investing risk-free assets for the last month of the rolling period
    • Adopted 100% loss for simplicity
    • Will improve later
  • Table join is costly
slide8

1-month portfolio of JAN2003

2-month portfolio of JAN2003

slide9

1-month portfolio of FEB2003

2-month portfolio of FEB2003

regression
Regression

Time-series averages of excess monthly returns, in excess of CRSP market index

where R is the portfolio’s return rate, Rf is the risk-free return rate, and Mkt is the return of the whole stock market.

Rf and Mkt downloaded from Ken French’s online data library,http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html#BookEquity

calculate holding period return
Calculate holding period return

First, need to get the first trading day of each month( called mindate)

Secondly, integrate CAR and Gt over all the available data set, and compute Gt at mindates

CAR values available at earning report dates

Gt values meaningful at mindates.

Calculate the adjusted price difference, return for each stocks in quintile

Calculation of returns and alphas

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