Detecting anchoring and disposition effects in the Egyptian stock exchange and their contribution to conditional volatility

Abstract

This study investigates the empirical presence, persistence and conditional volatility implications of anchoring and the disposition effect among market participants in the Egyptian Stock Exchange (EGX) from 2010 to 2025. Anchoring is measured by whether nearness to the 52-week high (underreaction) and historical high (overreaction) predicts future returns and the disposition effect is estimated through the relationship between win-day and lose-day indicators and abnormal trading volume. Autoregressive moving average generalized autoregressive conditional heteroskedasticity (ARMA-GARCH) models assess the effect of each bias on conditional volatility for the full sample and four politically and economically distinct subperiods. Anchoring exerts a broadly stabilizing effect on volatility that persists across the sample but breaks down under the compounding shocks of the most recent regime. The disposition effect emerges as the most stable of the two biases, present in every subperiod without exception. Across both biases, the ARMA-GARCH estimations confirm that behavioral proxies are statistically significant determinants of conditional volatility, indicating that behavioral factors constitute a material component of equity risk. These findings contribute to the growing body of behavioral finance literature on Egypt with implications for portfolio strategy, volatility risk management and market regulation in Egypt and comparable emerging markets.