The effect of prospect theory value on asset returns on the Borsa Istanbul


Mollaahmetoğlu E., Altay E.

BORSA ISTANBUL REVIEW, no.5, pp.1058-1066, 2023 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Publication Date: 2023
  • Doi Number: 10.1016/j.bir.2023.05.005
  • Journal Name: BORSA ISTANBUL REVIEW
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, EconLit, Directory of Open Access Journals
  • Page Numbers: pp.1058-1066
  • Keywords: Asset pricing, Borsa Istanbul, Prospect theory
  • Istanbul University Affiliated: Yes

Abstract

The goal of this study is to test the validity of the prospect theory in the Borsa Istanbul (BIST) over the sample period September 2009 to December 2019. The prospect theory values of the stocks are generated from their historical return distributions following the method by Barberis et al. (2016). Panel data analysis is implemented in six different models with market and nonmarket factors for three different data sets of stocks listed on the BIST. We employed control variables, such as Fama and French (2015) five-factor model (FF5M) factors as well as past return and skewness indicators, in the models in addition to the prospect theory value and test whether prospect theory can predict subsequent stock returns. The results show that the prospect theory value has a statistically significant effect on the asset returns and its impact is seen in particular on smallcap stocks in the Turkish stock market.Copyright (c) 2023 Borsa Istanbul Anonim sirketi. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).