Adjustment and anchoring bias or disposition effect: Evidence from momentum pattern

Behavioral finance explains the contradictory patterns with efficient market hypothesis with behavioral bias. One of the most common stock market price patterns is momentum, which can be due to the investor's under-reaction of reference prices resulting from two behavioral biases is adjustment and anchoring bias and disposition effect. This research studies the role of adjustment and anchoring bias and disposition effect in formation of momentum in Tehran Stock Exchange. Using portfolio method as research method and data over the period from 2007 to 2017 (1386-1395 in Solar Hijri-Iranian calendar), It was found that investors, in comparison with disposition effect, are more affected by adjustment and anchoring bias, and by under-reaction against reference points based on price extremes up to one year cause the formation of momentum pattern. Also, among price extremes, investors are more affected by high-26 weeks and robustness tests confirm these results by using the Fama-Macbeth regression and the Fama-French model.