ABSTRACT

• Disposition Effect is known as the reluctance of investors to realize losses and their eagerness to realize gains. It’s an anomaly in Behavioral finance which relates to investors tendency to sell a security when its price has increases and holding on to a security when its price has dropped. Investors are unwilling to recognize losses which will occur if they sell a security which had fallen in value but are more willing to recognize gains if the value has increased.

• The factor used to determine the volume of turnover on the first trading day should be the initial rate of return.

• Research shows that a higher turnover volume is associated with a positive initial rate of return and vice versa which is explained by disposition effect.

• The research is conducted on the emerging market in Poland. The Warsaw stock exchange which recently have been the second largest IPO market after London.

INTRODUCTION

• Investors always making decisions

• They do not always act as would be predicted by the neo classical theory of finance.

• Disposition effect considered an implication of Prospect theory of kahnemen and tversky. Prospect theory says investors exhibit an S-shaped valuation function. Investors avoid risk in the case of potential gains and seek risk in the case potential losers.

• (Figure 1) explains disposition effect. An investor tends to sell a share much faster when there is a gain because the utility of further price growth is smaller.

• Disposition Effect can be analyzed from various perspectives: individual, group and aggregate.

• INDIVIDUAL: decision making process itself. Subjects selling winners and keeping loser.(weber and camerer)

• GROUP: level of disposition effect refers to the characteristics of particular group of investors. Disposition effect less than