Abdullah Al-Ashi Jungha Woo

Muna AlbasmanTalha Yasin

The disposition effect implies that stock prices under-react to bad news when more current holders are facing a capital loss, and under-react to good news when more current holders are facing a capital gain.

Leads to return predictability.

Data (WRDS)

CAR, G_t

IFCAR > 0Bad news Good news

Perform trading strategies to test hypothesis

PEAD, monthly alphas

Overhang Spread

andNegative Overhang

Spread

MonthlyAlphas

byOverhang

Spread

Alphasand

FactorLoading

YesNo

SAS Learning and getting comfortable with the SAS command line

interface as web interface not adequate for merging/linking tables and calculations etc.

Major data processing done in SAS using different procedures like SQL, SAS Interactive Matrix Language (IML)

Computing Cumulative Abnormal Returns (CAR) Get the relevant data and compute the values for some famous

stocks

Computing Capital Gains Overhand (Gt) Computed using the mutual fund holdings for some subset of

stocks/MFs

Details follow

A measure of the earning news surprises, calculated around the most recent earnings announcement date

where rh is the stock return on day h, with the earnings announcement date being at h= 0,

and‾ri,h is the CRSP equally weighted NYSE/AMEX/NASDAQ index.

1

2,,

hhihii rrCAR

Extracting the following from WRDS: Earning released dates under COMPUSTAT-

Fundamental Quarterly dataset for every company identified by GVKEY

Daily return values under CRSP-dsf (daily stock file) for every company identified by PERMNO

PERMNO-GVKEY merged link table under CCM dataset

S&P 500 index daily returns

A means of quantifying the FIFO ‘mental accounting’ at anchor points

Defined as the percentage deviation of the aggregate cost basis from the current price.

t

ttt P

RPPg

where Vt,t−n is the number of shares purchased at date t −n that are still held by the original purchaser at date t

Pt is the stock price at the end of the month t φ is a normalizing constant

n

tnttnttt PVRP

1,,

1

n

tnttV

1,

Shows aggregate holdings for a group of mutual funds of a particular stock(MSFT) over time

If positive, investor is in gains If negative, investor has unrealized loss Thus, efficient way to guess his mental account Need to know the mutual fund holdings of stocks

at particular dates(quarterly data available) We are getting the data from the CRSP mutual

fund database which is from 2003 onwards.

Sanity checks on CAR and Gt Integration of code and calculation of CAR and Gt

over all the available data set Implementing the rolling portfolios in SAS Calculation of returns and alphas to test the

hypothesis