The irrational behaviour of investors and its impact on stock price movements

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dc.contributor.authorToh, Guat Guan
dc.date.accessioned2014-11-03T02:13:28Z
dc.date.available2014-11-03T02:13:28Z
dc.date.issued2009
dc.descriptionPhDen_US
dc.description.abstractIs the Efficient Market Hypothesis (EMH) still alive in the real world if the rationality assumption does not hold? Since markets consist of human beings, it seems logical that explanations rooted in the psychological attributes of investors would shed some light on stock market behaviour. This research attempts to use the event study methodology to investigate whether investors’ irrational behaviour could explain stock price movement. There are four main findings of this study. Firstly, Malaysian investors are attentiondriven. Their trading behaviour is biased toward attention-grabbing events, namely daily abnormal trading volume and daily extreme price changes. Secondly, investors’ judgement exhibits reference dependence. They use 52-week high and 52-week low as a reference point to guide them in making trading decisions. However, investors are not biased by representativeness and availability heuristics. Thirdly, attention-based strategies do not generate positive abnormal returns except for the strategy of buying portfolios of loser-stocks. Lastly, 52-week high and 52-week low seem to affect portfolio returns. Portfolios whose current stock price exceeds (fall below) its 52-week high (52-week low) underperform (outperform) the market in the subsequent period. The results of this study have some implications on financial theories. Investors are irrational. The psychological attributes of investors tend to cause excessive trading in the market. This could give a serious challenge to the rationality assumption of the EMH. Attention-based strategies, especially that of buying portfolios of loser-stocks yield positive abnormal returns in the short-run, but the promising returns automatically disappear in the longer horizon. Hence, we conclude that Malaysian market remain efficient in the long run.en_US
dc.identifier.urihttp://hdl.handle.net/123456789/243
dc.language.isoenen_US
dc.subjectManagementen_US
dc.subjectIrrational behaviouren_US
dc.subjectStock price movementsen_US
dc.subjectBursa Malaysiaen_US
dc.titleThe irrational behaviour of investors and its impact on stock price movementsen_US
dc.title.alternativeEvidence from bursa Malaysiaen_US
dc.typeThesisen_US
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