1. The Disposition effect and Underreaction to news Abdullah Al-Ashi Jungha Woo Muna Albasman Talha Yasin 1

2. Current work distribution 2 Under-reaction to disposition effect Post-Earning announcement drift, Alphas Overhang Spread, Alphas Alphas by overhang quintiles Alphas and factor loadings

3. Progress (CAR) 3 Code refined (CAR): 1.Code is refined to provide one to one linking within a effective dates 2.When presenting current date WRDS database shows a null value for linkenddate (date until which the link ID’s where effective) 3.CAR was calculated for all the companies using SAS Next step: 1.Apply CAR to sort rolling portfolios Output file: 1.Took 15minutes to run, 15.6MB

4. Reference price: 1.Calculated using CRSP mutual fund holding data (2003  2009) 2.Code is tested and ready to use for calculating capital gain overhang for the whole data set Capital gain overhang: 1.Calculated using CRSP daily stock file 2.Code still require minor adjustments (stock price) we are not using adjusted prices right now, but we will add that later Important progress: 1.Extracted the monthly first trading day from CRSP daily stock file to use in calculating rolling portfolios 4 Progress (Capital Gain overhang)

5. Next step: 1.Calculate the Capital gain for all the companies using SAS after adjusting the stock price 2.Use extracted first trading day to calculate rolling portfolios. 3.Integrate/test CAR, Gt, RPt codes to use simultaneously to calculate rolling portfolios. 4.Apply Capital gains to sort rolling portfolios Problems: 1.Calculating the capital gains overhang for 2 mutual funds took 10 minutes 2.Hard, takes time to debug errors in the code (slow progress) 5 Progress (Capital Gain overhang)

6. 6 Snapshot result (CAR) GVKEYPERMNO Earning release Date CAR 121411010724-Jul-860.033829 121411010721-Oct-860.059111 121411010721-Jan-870.165421 121411010720-Apr-87-0.03379 121411010723-Jul-87-0.00301 144891108114-Feb-02-0.03752 144891108116-May-020.069812 144891108115-Aug-020.034308 144891108114-Nov-02-0.01256 60661249016-Jan-800.027127 60661249014-Apr-80-0.01702 60661249014-Jul-800.004127

7. 7 Snapshot result (capital gain overhang) PERMNO Date Capital gain overhang 10147 2004/12/31 0.00000 10147 2005/03/31 -0.17169 10147 2005/06/30 -0.02456 10147 2005/09/30 -0.06247 10147 2006/03/31 -0.00483 10147 2009/06/30 -0.04046

8. Example of rolling portfolios, rolling period = (+2) DEC 2003JAN 2004FEB 2004MAR 2004 8 Next, calculating rolling portfolios Portfolio 1 Portfolio 2 Portfolio 3 Rolling periods could be: 1.(+1): Every month 2.(+2): Every two months 3.(+3): Every three months

9. Calculating rolling portfolios Time (rolling periods = (+1)) DEC 2003 JAN 2004 FEB 2004 MAR 2004 - - - - - - - - - - - - - -  end period 9 1.IBM 2.MSFT 3.DELL 4.. 5.. 1.DELL 2.MSFT 3.IBM 4.. 5.. 1.HP 2.MSFT 3.DELL 4.. 5.. 1.IBM 2.MSFT 3.DELL 4.. 5.. Top 20% Quintile 5 Take top 20%, portfolio returns, regress, alpha Take next20%, portfolio returns, regress, alpha Take last 20%, portfolio returns, regress, alpha Sort using (most recent) CAR, and or capital gain Next 20% Quintile 4

10. 10 Best fit line (Alphas) Next Step: Regress results as shown below Calculate the intercept (alpha) Quintile portfolio Excess return Market excess return Portfolio excess return

11. Questions? 11