Investor behavior: an attempt to explain it through prospect theory.

Summary This thesis indirectly examines the predictions of prospect theory regarding investor behavior in financial markets by treating the "disposition effect" in a dynamic framework: this "disposition effect" indicates the propensity of investors to sell winning stocks too quickly and to hold losing stocks in their portfolios too long. The reflection is organized in four steps. First, we deduce analytically and graphically the disposition effect from the prospect theory, showing that it results simultaneously from the effects of the reference point (or price) and of reflection. Second, given that the market is in constant motion, we believe that a dynamic reference price better matches the expectations of investors subject to the disposition effect. In this perspective, we develop a conceptual framework that allows for the adjustment of the reference price over time, assuming a differential perception of risk on the part of investors. Third, the notion of the mental account is introduced into the analysis in order to assess how investors evaluate their gains and losses with respect to the dynamic reference price. Finally, from a theoretical point of view, the literature suggests a close link between movements in trading volume and market volatility. By proposing different local models, we hope to have contributed to a better understanding of the determinants of volume movements in financial assets. From a practical point of view, our results could constitute an interesting avenue for investors, especially fund managers.