Browsing by Subject "Financial Management"

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    Open Access
    Better than average: An investigation of overconfidence in South Africa
    (2014) Dowie, Glen; Willows, Gizelle
    This dissertation examines overconfidence in an investing environment to determine if there is evidence of the phenomenon amongst a sample of academics at participating universities. A survey was sent out to over 6 000 staff members at four South African universities assessing respondents’ ability to estimate their return earned in unit trusts in which they were invested, as well as assessing whether they would adjust their estimate when presented with an anchor (the relevant JSE All Share Index return). 466 completed responses were obtained, of which 81 respondents indicated that they were invested directly in a South African equity unit trust to allow for statistical testing. The data obtained were analysed for evidence of overconfidence and anchoring by comparing respondents’ estimates of fund returns against historical returns and then checking whether they adjusted their estimate after being presented with an anchor. It was found that investors were under-confident rather than overconfident with women giving lower, and thus more under-confident estimates than their male counterparts. Furthermore, it was found that older respondents were better able to estimate their past returns than younger respondents. The presence of an anchor appeared to have no effect on respondents’ estimates.
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    The disposition effect in South African Equity markets
    (2014) Bashall, James; West, Darron; Willows, Gizelle
    The “disposition effect” describes the propensity for investors to realise gains sooner than losses through selling profit making investments more readily than loss making investments. This behaviour has been observed in financial markets across the world and across all investor classes, albeit to varying degrees. Such trading behaviour has been found not to be profit or utility maximising. I n the absence of rational motives for the disposition effect, it is concluded as being an irrational feature of investor trading behaviour. In search of the reason behind this behaviour, behavioural finance is turned to. No concrete justification for the disposition effect has been isolated as being the sole cause for this apparently irrational trading behaviour. This study tests for the disposition effect in a South African context 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 a sample of 4 840 investor accounts from a South African stockbroker was analysed over the five year period from October 2008 to October 2013. Three primary issues were addressed: (i) whether South African investors exhibit the disposition effect, (ii) if this behaviour is reduced by non-professional investors through the employment of professional advice, and (iii) if this trading behaviour can be justified based on rational g rounds in a South African context. The results showed, consistent with studies elsewhere in the world, that individual investors in South Africa do exhibit the disposition effect both when acting in their own capacity and when acting with the assistance of professionals . Investors acting with the assistance of professional advisors are found, however, to show the effect to a lesser extent. Further, trading consistent with the disposition effect by investors acting with the assistance of professional advisors is found to be rationally justifiable on the grounds of portfolio rebalancing. It is therefore concluded that professional advice reduces the extent to which this irrational trading behaviour is exhibited, thereby increasing investor profits and utility.