The Effect of Anchoring Bias and Disposition Effect on Momentum Profit with Regard to the Role of Retail Investors

With the growth of financial-behavioral hypotheses and conducting numerous studies to identify the effect of behavioral biases, one of the areas that has been considered by researchers is the field of research related to momentum strategy.The purpose of this study is investigating the disposition effect and anchoring bias separately and in combination with each other to impact momentum profits ad the role of retail investors in this relationship. The statistical population of the study includes companies listed in the Tehran Stock Exchange and the statistical sample includes 136 companies during the years 2007 to 2020. In this study, the effect of disposition effect has been calculated using the approach of Greenblatt and Han (2005) and Frazzini (2006) and the anchorage bias according to the method of George and Hwang (2004). The methodology of Jegadeesh and Titman (1993) has also been used to calculate momentum profits.To test the research hypotheses, the five-factor model of Fama and French (2015) has been used. The results of testing the research hypotheses show that the disposition effect increases the momentum profit. Anchoring bias also leads to an increase in momentum profit. Another result of the research indicates that the interaction effect of anchoring bias and the disposition effect while these two reinforce each other, is also associated with an increase in momentum profit. Finally, when anchoring bias and disposition effect work together, the presence of a high percentage of retail investors increases momentum profits.