People are prone to psychological bias rather than being entirely rational. The disposition effect in which investors exhibit fear of making losses is a manifestation of investors’ psychological bias. Numerous Taiwanese and foreign scholars have studied disposition effect, but have rarely explored the disposition effect and investor underreaction during the Financial Crisis. Therefore, we conducted an event study to explore the relationship among the 2008 Financial Crisis, the disposition effect, and investor underreaction. The empirical results revealed that investors in Taiwan’s stock market exhibited a disposition effect between 2007 and 2008. This effect then decreased after the crisis, demonstrating a negative correlation between financial crisis and the disposition effect. In addition, investor underreaction exerted no influence on the disposition effect after the crisis, indicating a insignificant relationship between these two phenomena. Furthermore, no reversal phenomenon for winner and loser stocks was observed during the test period, implying investor underreaction after the financial crisis.
