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6. CONCLUSION
Previous researches propose and examine the prospect theory that people are risk-averse in gains and risk-loving in losses. The disposition effect, which means that investors have a tendency to realize gains and defer the realization of losses, have been confirmed that it indeed exists in both stock and futures markets. Many researchers devote themselves to explain the reasons or find the factors.
In this study, we use four kinds of futures contracts from TAIFEX, including the Taiwan Stock Index futures (TXF), the Mini Taiwan Stock Index futures (MXF), the Taiwan Electronic Index futures (EXF) and the Taiwan Financial Index futures (FXF), to investigate the disposition effect and performance in different investor types. There are four investor types we mainly focus on ─ domestic institutions, individuals, proprietaries, and foreigners. In addition, we consider the relationship between trading volume and performance. If investors trade too much and then lose more, we will regard this phenomenon as overconfidence.
The results show that individuals display the highest disposition effect on four contracts, followed by domestic institutions, proprietaries and foreigners. Both proprietaries and foreigners barely or even don’t exhibit the disposition effect. Our findings are consistent with previous researches.
To shed some light on trading behaviors of investors, we further discuss whether investors’ behaviors are influenced by trading volume or market conditions.
According to the statistic result, individual investors are the primary trading group in Taiwan. Moreover, some previous studies suggest that some individual investors trade like professional institutions. Therefore, we further separate the individual group by their trading volumes.
The outcome indicates that individual investors with higher trading volume on most
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of contracts have lower disposition effect, but higher overconfidence.
Additionally, we are also curious about whether investors demonstrate different trading behaviors during financial crisis. As a result, we utilize a date of happening financial crisis to divide our sample period into two sample periods. One is before financial crisis, the other is during financial crisis.
We find that institutional investors exhibit lower disposition effect and weaken the overconfidence on most of contracts during financial crisis. In contrast, individual investors display higher disposition effect and strengthen the degree of overconfidence.
According to the results, we can learn that institutions are more professional than individuals no matter the market conditions. The possible explanation is that institutional investors are more informed and professional and have larger funds to face the diversified situations.
To sum up, we confirm the existence of disposition effect in Taiwan futures markets.
Meanwhile, we verify that investors in different investor types display differently.
Especially, the individuals obviously exhibit the disposition effect. Moreover, the individual investors with high trading volume display less disposition effect. Finally, we testify that financial crisis influence the trading behaviors of investors.
Because we use all round trips by contracts, the duration would be lengthened by furthest contracts, if they don’t complete before expire date. So, if neglecting the round trips of furthest contracts, the results could be much clearer. In addition, we don’t test overconfidence, so further research can use some methods to confirm that investors exhibit overconfidence.
For further study, we recommend that extension can analyze disposition effect by separating the investors into winners and losers, instead of investor types. Maybe the results are different and significant.
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