Search our site :

The Behavioural Finance and Accounting Research Group (BFA) was founded in 2017 with the aim to encourage and attract research on cognitive and economic decision-making pertaining to financial markets and the preparation and interpretation of financial statements. The Group prides itself on collaborative research between academics and students across the globe. A key aspect of BFA is applying behaviour research to real world contexts by taking social and psychological theory on decision making and assessing its validity in organisational and individual financial decision making. 

The members of BFA welcome interest from academics who are wanting to pursue collaborative research or potential PhD candidates in the fields of Behavioural Finance or Behavioural Accounting. 

Publications

Below is a list of recent publications produced by BFA members:

  • Bashall, J; Willows, GD; West, D (2018). The Extent to Which Professional Advice Can Reduce the Disposition Effect: An Emerging Market Study. Journal of Emerging Market Finance. 17(2). 1-21. Available at: https://doi.org/10.1177/0972652718776861

This study tests for the disposition effect in South Africa across two classes of non-professional investors: those acting in their own capacity and those acting with the assistance of professional investment advisors. The trade history of 4,840 investor accounts from a South African stockbroker was analysed over the 5-year period from October 2008 to October 2013. The results showed that individual investors in South Africa exhibit the disposition effect. However, investors acting with the assistance of professional advisors show the effect to a lesser extent which was found to be rationally justifiable on the grounds of portfolio rebalancing

  • Richards, D. W. Fenton-O'Creevy, M., Rutterford, J., Kodwani D.G. (2018) Is the disposition effect related to investors’ reliance on System 1 and System 2 processes or their strategy of emotion regulation? Journal of Economic Psychology 66, 79-92 Available at https://doi.org/10.1016/j.joep.2018.01.003

We report research on investor susceptibility to the disposition effect, a financial decision-making bias where investors have a greater propensity to realize gains than realize losses.  Despite theoretical arguments for the influence of emotions, research on susceptibility to this bias, on real investors, has relied primarily on socio-demographic explanations. Using investors’ trading records from a UK sample, we measure their susceptibility to the disposition effect and assess, through a questionnaire, their reliance on Systems 1 and 2 cognitive processes and use of two emotion regulation strategies. Investors with higher reliance on System 1 processes have greater disposition effect, but reliance on System 2 processes is not related to the disposition effect. Investor reliance on reappraisal reduces their disposition effect. However, the use of expressive suppression does not show a statistically significant relationship with this bias. These results suggest that investors’ intuitive emotional reactions explain susceptibility to bias, and that effective strategies of regulating emotions enable this bias to be overcome.

Research has shown that investors trade too frequently, and that this overtrading lowers investment return. This paper examines the characteristics of investors who trade frequently. Multivariable regression analysis of over three years of trading data from 7200 UK investors enabled identification of numerous characteristics significantly and positively associated with frequent trading. These were male gender, younger age, use of stop losses and use of multiple mediums of trading, including the internet, the telephone and an advice team. In addition, the research revealed that trading frequency is positively skewed, in that a small proportion of investors are responsible for the majority of the trading with the highest cumulative value. The results are of practical value to policy makers that want to reduce investors' trading frequency because they outline that a small minority of investors need be targeted.

  • Richards, D.W.; Willows, G.D. (2017). Who Trades Profusely? The Characteristics of Frequent Trading Individual Investors. Global Finance Journal. Forthcoming. Available at http://dx.doi.org/10.1016/j.gfj.2017.03.006

Research has shown that investors trade too frequently, and that this overtrading lowers investment return. This paper examines the characteristics of investors who trade frequently. Multivariable regression analysis of over three years of trading data from 7200 UK investors enabled identification of numerous characteristics significantly and positively associated with frequent trading. These were male gender, younger age, use of stop losses and use of multiple mediums of trading, including the internet, the telephone and an advice team. In addition, the research revealed that trading frequency is positively skewed, in that a small proportion of investors are responsible for the majority of the trading with the highest cumulative value. The results are of practical value to policy makers that want to reduce investors' trading frequency because they outline that a small minority of investors need be targeted.

The disposition effect is an investment bias where investors hold stocks at a loss longer than stocks at a gain. This bias is associated with poorer investment performance and exhibited to a greater extent by investors with less experience and less sophistication. A method of managing susceptibility to the bias is through use of stop losses. Using the trading records of UK stock market individual investors from 2006 to 2009, this paper shows that stop losses used as part of investment decisions are an effective tool for inoculating against the disposition effect. We also show that investors who use stop losses have less experience and that, when not using stop losses, these investors are more reluctant to realise losses than other investors.

Current research projects

Below is a brief listing of current research projects being undertaken by BFA members:

  • Trading volatility on different days of the week and times of the day
  • Disposition effect amongst traders on the ALSI
  • Disposition effect and trading commissions
  • Diversification bias and concentration of risk by fund managers
  • Determinants of retirement savings sufficiency

Members:

                        
     

Dr Gizelle D. Willows

College of Accounting, The University of Cape Town, Cape Town, South Africa -  http://www.commerce.uct.ac.za/Accounting/People/Financial-Reporting

Contact: Gizelle.Willows@uct.ac.za


Dr Daniel W. Richards

School of Accounting, RMIT University, Melbourne, Australia - https://www.rmit.edu.au/contact/staff-contacts/academic-staff/r/richards-dr-daniel

Contact: Daniel.Richards@rmit.edu.au