Arbeitspapier

Decomposing the disposition effect

We theoretically show that there is a fundamental disconnect be- tween the disposition effect, i.e., investors' tendency to sell winning assets too early and losing assets too late, and its common empirical measure, namely a positive difference between the proportion of gains and losses re- alized. While its common measure cannot identify the disposition effect, it identifies the presence of some systematic bias. We further investigate the measure's comparative statics regarding markets, investors' information level, and their attention. Besides generating novel testable predictions, this analysis reveals that, in contrast to the measure's sign, variations in its magnitude are informative for its cause.

Language
Englisch

Bibliographic citation
Series: Discussion Paper ; No. 288

Classification
Wirtschaft
Micro-Based Behavioral Economics: General‡
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Expectations; Speculations
Portfolio Choice; Investment Decisions
Behavioral Finance: General‡
Behavioral Finance: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets‡
Subject
Disposition Effect
Rational Benchmark
Investor Behavior
Behavioral Biases
Market Segments
Financial Attention
Information Level

Event
Geistige Schöpfung
(who)
Maier, Johannes K.
Fischer, Dominik Simon
Event
Veröffentlichung
(who)
Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition
(where)
München und Berlin
(when)
2021

Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Maier, Johannes K.
  • Fischer, Dominik Simon
  • Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition

Time of origin

  • 2021

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