Loss Aversion, House Money Effect, and Stock Bubbles

• Main Authors: Po-Hsin Liao, 廖柏欣
• Other Authors: none
• Format: Others
• Language: zh-TW
• Published: 2003
• Online Access: http://ndltd.ncl.edu.tw/handle/30250641144558965114

碩士 === 國立雲林科技大學 === 財務金融系碩士班 === 91 === The study of assets price bubbles is always the main issue in financial field. However, the related literature of bubbles doesn’t include analysis of psychology behind investors and verified of behavior may result in. In this paper, we construct a theory to explain the bubbles and crash of financial assets under the situation of investors own the psychology of loss aversion or house money effect. Through the behavioral feedback traders interact with rational arbitrageurs and the condition on the partial equilibrium model, the results of this study show: 1. While behavioral feedback traders attitude loss aversion, even though existing rational arbitrageurs, it still forms the bubble. It also crashes larger and larger under the effect of loss aversion. 2. When house money effect existing in behavioral feedback traders and the stock price fall down the historical price, the two segments of kinked demand of behavioral feedback traders will really deepen the falling. Especially, the more of stock price fall down the historical price, the more of crashes to the markets. 3. At last, we differentiate more on the decline degree of stock price under the two mental. Through comparing on the same basis points, we proved that the house money effect cause the deeper decline degree of stock price than the condition of loss aversion. In other words, the crashes are more satisfied with stock market phenomena under the situation of house money effect. The results of this research as mentioned above not only can illustrate the 1987s’ crashes but evidence a specific view from investors' psychology for the declining rapidly financial assets. Under the effect of investor’s psychology, it's just the contribution to these phenomena and the factor that caused these phenomena taken place continuously. If investors could realize adequately their personalities and characters in advance, then, getting rid off the irrational sentiments, the bias of the investment caused by these behaviors will be reduced to the minimum.