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BUSI701 Week 2 Reply Coomb
Advanced Business Research Methods (Liberty
University)
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Behavioral Finance
BUS701 – Reply to Week 2 Discussion Board - Finance
As John Coombs discussed, the disposition effect has been investigated thoroughly over
the last decade, although still, it is a very intriguing topic. Investors alike have been in one way
or another victim of this behavior, no matter the market conditions or how experienced they are.
While reading more about this topic, it is cathartic to share how troubling this behavior could be
for anyone, whatever their financial goals may be. Nevertheless, it is gratifying to have a more
comprehensive understanding of this topic. Thanks, John.
More research on this topic led to the work of Hariyando et al. (2020) on the
“Disposition effect and herding behavior in the cryptocurrency market.” This article
complements similar behavior bias in a different set of business dynamics, such as the
cryptocurrency market. After reviewing the results of this study, it shows a reversed disposition
effect in bullish periods, which is contrary to the traditional stock markets. Moreover, in bearish
periods, it shows the usual positive disposition effects as in conventional markets. In this study,
the authors also investigate the effects on herding behavior (the process when an economic agent
mimics the decision of others), which is also part of several forces that influence investment
decisions, specifically in the context of corporate investment. The results in this analysis show
that herding increases when bitcoin prices change in either bullish or bearish markets.
Researchers believe the reverse disposition effect is a result of the preconceived
knowledge and expectations of bitcoin investors. Bitcoin traders usually expect a very high
return on their investment. Furthermore, Crypto-traders use popular terminology like FOMO
(“fear of missing out”) and HODL (“misspelled of Hold”) to indicate the strategies of holding
the
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asset and selling it too early, which leads to missed opportunities for substantial gains (Haryanto
et al., 2020).
With all of the uncertainty in the world and the world markets, God is always in
control. “But let him ask in faith, with no doubting, for the one who doubts is like a wave of
the sea that is driven and tossed by the wind.” (English Standard Version Bible, 2016, James
1:6).
References
English Standard Version Bible. (2016). Crossway Bibles.
Haryanto, S., Athor, S., & Ulpah, M. (2020). Disposition effect and herding behavior in the
cryptocurrency market. Economia e Politica Industriale, 47(1), 115-132.
http://dx.doi.org.ezproxy.liberty.edu/10.1007/s40812-019-00130-0
