Macquarie University
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In the same boat: behavioural influence on investors, executives, and financial markets

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posted on 2023-03-16, 02:50 authored by Aldo Fortunato Dalla Costa

This dissertation consists of three empirical studies that examine distinct behavioural features in individual traders, corporate managers, and financial markets. Specifically, the first study investigates changes in traders’ biases regarding the use of alternative payment methods and their saliency. The second study documents the impact of CEO narcissism on accounting conservatism discretion. Lastly, the third study empirically tests the existence of gravitational effects in the foreign exchange market with bounded prices. This research addresses several gaps in the extant literature and aims to become part of the body of knowledge relevant for academics as well as investors, managers, and other actors operating in financial markets.  

The first study investigates whether payment methods utilized by investors in mutual funds are associated with investors’ tendency to realize gains earlier than losses – the disposition effect. We utilize a proprietary dataset of investor trading accounts in Indonesian mutual funds who are permitted to buy and sell securities with an exchange for cash or other assets. These two payment methods are economically equivalent but differ in payment saliency. We find more salient payment methods are associated with a higher disposition effect, and vice versa, namely less salient payments are associated with a reduced tendency to realize gains more readily than losses.  

The second study investigates the relationship between CEO narcissism and accounting conservatism. Conservative accounting implies companies should recognize the impact of the negative news they receive as soon as possible (i.e., conditional conservatism). Conversely, information regarding potential positive circumstances should not be noted in the firms’ financial accounts until they become relatively certain (i.e., unconditional conservatism). We hypothesise that CEO narcissism has a twofold influence on accounting conservatism. First, narcissistic CEOs are more likely to attempt to facilitate early recognition of positive news events and seek to reduce unconditional accounting conservatism. Alternately, narcissistic CEOs may anticipate negative news events and seek to improve conditional accounting conservatism. We find CEO narcissism is associated with accounting practices that promote the timely recognition of both positive and negative news. We provide the first evidence that executive narcissism can produce positive outcomes, contrary to widely held views that narcissism is a personality trait with only negative outcomes. Our results are robust to tests of endogeneity, multiple model specifications, CEO tenure, and degrees of CEO narcissism.  

The third study tests the presence of behavioural distortions and anomalies in the context of foreign exchange markets under a target-zone regime. The impact of price boundaries has been documented in the context of futures and stock markets; however, there is currently no research testing whether the presence of price limitations also generates behavioural consequences in the foreign exchange market. This study fills this gap in the literature utilizing trades and quote data on the Hong Kong Dollar (HKD). The HKD is one of the world’s most traded currencies and is pegged to the USD within a target-zone exchange rate that ranges between HK$7.75 and HK$7.85 per 1US$. Consistent with the presence of behavioural expectations, the empirical results of this research reveal that market trading conditions are impacted in the moments prior to the market valuation reaching the edge of the HKD’s target zone. Further, this research also shows that the HKD price patterns are altered when the currency’s spot price is close to the edges of its target-zone. In line with extant literature, the intensity of the phenomenon is monotonically increasing as the price of HKD approaches its limits.


Table of Contents

Chapter 1 . Introduction -- Chapter 2 . Literature review -- Chapter 3 . Payment methods and the disposition effect: evidence from Indonesian mutual fund trading -- Chapter 4 . The bright side of CEO narcissism and its impact on accounting conservatism -- Chapter 5 . A behavioural exploration of the Hong Kong dollar exchange-rate target-zone -- Chapter 6 . Conclusions -- Appendix A -- References

Awarding Institution

Macquarie University

Degree Type

Thesis PhD

Department, Centre or School

Department of Applied Finance

Year of Award


Principal Supervisor

Vito Mollica

Additional Supervisor 1

Abhay Singh


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172 pages

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