•Savings adequacy is best predicted by the decision tree model with 96.1% accuracy.•Mental accounting categories have predictive power on savings adequacy.•Luxury items and current asset amount were ...most important to savings adequacy.
This paper proposes a machine-learning-based method that can predict individuals’ savings adequacy in the presence of mental accounting. The proposed predictive model perceives wealth and consumption, each of which is being divided into three non-fungible distinct classes. The predictive model has found that the mental accounting categories have predictive power on savings adequacy, whereby the emphasis is that the expenditure on luxury items is followed by the total current asset. Savings adequacy is best predicted by the decision tree model based on the Malaysian Ageing and Retirement (MARS) survey data. Surprisingly, it was found that future income and necessities had a lower predictive power on savings adequacy. The findings suggests that individuals, financial professionals, and policymakers should be cognizant that higher likelihood of achieving savings adequacy can be achieved by focusing on accumulation of current asset while lowering expenditure on luxury items.
This study examines the impact of investor sentiment and market sentiment on overreaction in Europe and USA markets before and during COVID-19. The investor sentiment is calculated by the standard ...deviation, realized volatility, Parkinson’s estimator and Garman and Klass’s estimator. The market sentiment is measured by Business Confidence Index, Consumer Confidence Index, Labour Force Survey, Leading Index and Monetary Aggregates. The results of this study show that investor and market sentiments are correlated to stock return before COVID-19. Nonetheless, realized volatility is the only investor sentiment that is significant with the emergence of COVID-19. It shows that investors rely on the previous day’s stock prices to trade under market uncertainty. Market sentiment is observed to be insignificant in the pandemic. Furthermore, the existence of overreaction is detected in European portfolios but no evidence of overreaction is shown in the USA during pre-COVID-19. Surprisingly, overreaction is observed in Europe and USA markets in the pandemic. The USA market has a higher overreaction tendency than Europe. The results of this study assist academicians, practitioners and investors in understanding and creating awareness of the existence of market overreaction and its determinants before and during COVID-19.
The upper echelons theory posits that the values, personalities, experience and education background of the top management team (TMT) affect both executives' strategic cognition and corporate ...outcomes. Since TMT members differ in their cognitive structures, as also acknowledged by the presence of managerial biases and irrationalities in the behavioural finance theories, policy makers and scholars are saddled with the problem of identifying specific cognitive elements that can secure optimum organisational outcomes. Conceptual approaches or linear relationships between TMT strategic cognition (TMT-SC) and outcomes are unable to capture the complex interdependencies among TMT-SC, TMT attributes and performance. We propose and empirically test a dynamic multi-dimensional TMT-SC model. Using handpicked UK company panel data, we provide robust empirical evidence that extends our understanding of the theory. Our PLS-SEM analyses show that heterogeneity in TMT academic and professional qualifications, and work experience alone cannot provide optimal benefits to organisations. However, when they are combined with other TMT cognitive factors such as social networking, innovativeness and risk-taking levels, these aspects appear to improve firm value and financial health.
Egyptian investors have lost a large portion of their investment due to the coronavirus pandemic. This research is novel research that aims to identify the behavioral factors of Egyptian investors ...that affect their investment decisions, before and after the pandemic. A number of survey questionnaires were distributed to Egyptian investors, in addition to personal interviews. Descriptive statistics and a regression model were used to analyzing the impact of psychological factors on the investment decisions for Egyptian investors. Results revealed that demographic and psychological factors influence investment decisions: overconfidence, loss, and regret aversion, disposition effect, representativeness and herding behavior, but it is not affected by gambler’s fallacy. It is affected also by some other demographic variables. However, income level has no effect. After the pandemic, not all demographic and psychological factors affect Egyptian investor’s behaviour. The behaviour finance theory is valid only and applied before the pandemic. This research opens the door for a new dimension to studying how to work on the governance of investors’ decisions, rationalizing those decisions and their effectiveness, which ultimately contributes to achieving high returns on their investment portfolios.
Objective: Traditional finance emphasises market efficiency and inherent behavioural anomalies in investors. However, the emergence of the adaptive market hypothesis tends to suggest otherwise. The ...adaptive market hypothesis challenges market efficiency and behavioural finance by contesting that investors and market participants adapt to changing market environment. In essence, investors learn from their mistakes. The purpose of this study was to explore the concept of an adaptive market hypothesis in five international markets, namely, the JSE, CAC 40, NASDAQ, JPX-NIKKEI and DAX.
Method: This study used a variance ratio test to explore the adaptive market hypothesis from January 2017 to April 2022.
Results: the findings revealed the existence of adaptive markets in the CAC 40 and NASDAQ during the period under review. Conversely, there was no statistical evidence to support the adaptive concept in the JSE, JPX-NIKKEI, and the DAX.
Originality/relevance: The implications of these findings is that investors in the CAC 40 and NASDAQ should consider active volatility scaling because of multiple betas, and hence fundamental analysis is worth the time. This study adds to the literature on adaptive markets hypothesis as well as market efficiency and behavioural finance.
Keywords: Adaptive markets; market efficiency; behavioural finance; financial markets; variance ratio
Technical analysis: Novel insights on contrarian trading Eugster, Patrick; Uhl, Matthias W.
European financial management : the journal of the European Financial Management Association,
September 2023, Letnik:
29, Številka:
4
Journal Article
Recenzirano
Odprti dostop
We analyze the predictive power of technical analysis with a novel data set based on news sentiment that allows to systematically examine a set of technical analysis indicators over an extensive time ...period. We do not find much statistically significant relationships with the examined indicators and future asset returns, and we almost do not find any alphas in trading strategies based on technical analysis sentiment. We find evidence for a contrarian‐based hypothesis: past market returns and technical analysis sentiment are able to predict future technical analysis sentiment with a negative relationship.
This paper proposes the development of an improved investor sentiment index (ISI) to apply on the Korea Composite Stock Price Index (KOSPI) and assess the vitality of sentiment‐based factor for ...explaining critical equity market anomalies in asset pricing in Korea. We follow the methodology of Huang et al. (2015), the align sentiment index, and employ the partial least squares method to overcome the drawbacks of the pioneering BM index of Baker and Wurgler (2006, 2007). Based on the daily trading and price data for individual companies from 2006 to 2021, we construct a novel ISI, which has robust predicting ability for the aggregate stock market return, in comparison to other popular measures of sentiment in the contemporary finance literature. Furthermore, the sentiment‐based factor in this paper captures the small firm effect that the asset pricing modelling, containing the more topical Fama–French five factor modelling (5F‐FF), has struggled to illuminate completely. Given that our results have shown Korean stock market as fairly well‐organised in terms of the availability of the market intelligence, we speculate our results to have important managerial implications for financial regulators in Korea and countries holding similar economic features.
This study examines the existence, tendency and determinants of herding in the Malaysian stock market under market stress from 2016 to 2020. This study adopts ordinary least square and quantile ...regression models to estimate herding. Three types of measurements are used to capture volatility, which are realized volatility, Parkinson volatility and Garman and Klass volatility. The result shows that herding exists in the Malaysian stock market. Investors are observed to herd stronger in the bearish (down) market condition compared to bullish (up) market condition, especially in the upper quantile (τ > 50%). Realized volatility is found to be significant in every quantile except for the median quantile (τ = 50%) and Garman and Klass’s volatility is significant in the upper quantiles of 0.75 and 0.90. This study assists analysts and investors to formulate better investment strategies. Regulators and policymakers shall also control and regulate the herding behaviour of investors, which can deviate the stocks from their fundamentals. The existence of herding also violates the assumptions of EMH in assuming that investors are rational.
Applying a well-established neuroscience framework to the issue of investor perception of volatility, we propose that after prolonged exposure to high volatility, investors tend to underestimate ...volatility due to adaptation to the high volatility, and vice versa. Using a combination of field and laboratory tests, we find strong support for this hypothesis. The evidence suggests that this neurobiologically-grounded perceptual bias can cause distortions of asset prices in sophisticated and liquid financial markets.
PDF
