Journal ArticleDOI
Are Investors Really Reluctant to Realize their Losses? Trading Responses to Past Returns and the Disposition Effect
TLDR
This article examined how investor preferences and beliefs affect trading in relation to past gains and losses and found that the probability of selling as a function of profit is V-shaped; at short holding periods, investors are more likely to sell big losers than small ones.Abstract:
We examine how investor preferences and beliefs affect trading in relation to past gains and losses. The probability of selling as a function of profit is V-shaped; at short holding periods, investors are more likely to sell big losers than small ones. There is little evidence of an upward jump in selling at zero profits. These findings provide no clear indication that realization preference explains trading. Furthermore, the disposition effect is not driven by a simple direct preference for selling a stock by virtue of having a gain versus loss. Trading based on belief revisions can potentially explain these findings.read more
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Handbook of the Economics of Finance
Journal ArticleDOI
Looking for Someone to Blame: Delegation, Cognitive Dissonance, and the Disposition Effect
TL;DR: This article analyzed brokerage data and an experiment to test a cognitive dissonance based theory of trading: investors avoid realizing losses because they dislike admitting that past purchases were mistakes, but delegation reverses this effect by allowing the investor to blame the manager instead.
Journal ArticleDOI
The Psychology and Neuroscience of Financial Decision Making
Cary Frydman,Colin F. Camerer +1 more
TL;DR: A boom in high-quality accumulated evidence, especially how practical, low-cost 'nudges' can improve financial decisions-is already giving clear guidance for balanced government regulation.
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Peer Pressure: Social Interaction and the Disposition Effect
TL;DR: In this paper, the authors exploit the staggered entry of retail brokerages into partnership with the social trading web-platform and compare trader activity before and after exposure to these new social conditions, finding that access to the social network nearly doubles the magnitude of a trader's disposition effect.
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The Worst, the Best, Ignoring All the Rest: The Rank Effect and Trading Behavior
TL;DR: The rank effect as discussed by the authors is a stylized fact about how investors trade assets: individuals are more likely to sell the extreme winning and extreme losing positions in their portfolio (the rank effect) when compared to other positions in an investor's portfolio.
References
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Journal ArticleDOI
Prospect theory: analysis of decision under risk
Daniel Kahneman,Amos Tversky +1 more
Journal ArticleDOI
Mental Accounting and Consumer Choice
TL;DR: It’s time to get used to the idea that there is no such thing as a “right answer” to everything.
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Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment
Brad M. Barber,Terrance Odean +1 more
TL;DR: For example, this paper found that men trade 45 percent more than women and earn annual risk-adjusted net returns that are 1.4 percent less than those earned by women, while women perform worse than men.
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Presentation Slides for 'Investor Psychology and Security Market Under and Overreactions'
Kent Daniel,Kent Daniel,David Hirshleifer,David Hirshleifer,Avanidhar Subrahmanyam,Avanidhar Subrahmanyam +5 more
TL;DR: This paper proposed a theory of securities market under- and overreactions based on two well-known psychological biases: investor overconfidence about the precision of private information; and biased self-attribution, which causes asymmetric shifts in investors' confidence as a function of their investment outcomes.
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All that Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors
Brad M. Barber,Terrance Odean +1 more
TL;DR: In this paper, the authors test and confirm the hypothesis that individual investors are net buyers of attentiongrabbing stocks, e.g., stocks in the news, stocks experiencing high abnormal trading volume, and stocks with extreme one day returns.
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Are Investors Really Reluctant to Realize Their Losses? Trading Responses to Past Returns and the Disposition Effect
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