Examining the Link Between Behavioral Finance and Portfolio Management Considering Disposition Effect as Mediating Role: Empirical Evidence from Pakistan

Abstract

The aversion to loss realization phenomena and the tendency for selling the winners soon while holding the losers for long; the “disposition effect” might result in affecting management decisions. This study is conducted for examining the link between behavioral finance factors i.e.: regret aversion, self-control and mental accounting with portfolio management while keeping the disposition effect as mediator. In order to find out the empirical evidences, survey from fund managers has been conducted using the structured questionnaire. SPSS tool is being used to test the linear regression analysis and a total of 55 sample size is being taken in the study. Findings of the study confirmed there exists significant mediator impact of disposition effect between the three aspects and the portfolio management. However, the study suggests to remove the effect of disposition by creating benchmark for both the losses and gains as well.