Are Investors Really Reluctant to Realize Their Losses? Trading Responses to Past Returns and the Disposition Effect
نویسنده
چکیده
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 a loss. Trading based on belief revisions can potentially explain these findings. (JEL G11, G12, G14)
منابع مشابه
Are Investors Reluctant to Realize Their Losses?
I test the disposition effect, the tendency of investors to hold losing investments too long and sell winning investments too soon, by analyzing trading records for 10,000 accounts at a large discount brokerage house. These investors demonstrate a strong preference for realizing winners rather than losers. Their behavior does not appear to be motivated by a desire to rebalance portfolios, or to...
متن کاملA Non-random Walk down the Main Street: Impact of Price Trends on Trading Decisions of Individual Investors
We analyze the impact of price trends on trading decisions of more than 40, 000 households with accounts at a major discount brokerage house. Buying and selling decisions of investors in our sample are influenced by short-term (less than 3 months) price trends. By comparing the observed distributions of average trend before buys and average trend before sells with the average trend distribution...
متن کاملAre Investors Reluctant to Realize Their Losses during Financial Crises? Evidence form Taiwanese and Chinese Stock Markets
This paper utilizes the disposition coefficient to verify whether disposition effect exhibits in Taiwan and Chinese stock markets during the periods of financial crises, and to discuss the differences of the disposition effect between appreciation and depreciation periods. The empirical results show that during the 1997 Asian financial crisis, disposition effect significantly exhibits in the bo...
متن کاملShould U.S. Investors Hold Foreign Stocks?
U.S. investors have traditionally been reluctant to acquire foreign securities—in part, perhaps, because they fear that restrictions on trading in foreign markets will sharply limit any gains they might realize from diversifying their portfolios. An analysis of the effects of one type of restriction, short-sale constraints, on stock returns between 1976 and 1999 suggests that investing in emerg...
متن کاملDo Behavioral Biases Affect Order Aggressiveness?
We investigate whether behavioral biases affect the order submission strategies of investors. We take advantage of a very unique database provided by the Shanghai Stock Exchange, which allows us to track order submissions and executions for every investor, and compare with their trading performance of individual stocks. Consistent with previous studies, we find that investors exhibit dispositio...
متن کامل