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The disposition effect in the absence of taxes

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  • Firth, Chris

Abstract

I measure household investment decisions undertaken in a setting that is free from investment taxes. The disposition effect is unequivocally present, but any seasonal impact of tax-loss selling is absent. There is evidence that the disposition effect correlates positively with inferior risk-adjusted investment performance. Although household preferences are unknown, losses cannot be explained by tax benefits.

Suggested Citation

  • Firth, Chris, 2015. "The disposition effect in the absence of taxes," Economics Letters, Elsevier, vol. 136(C), pages 55-58.
    • Handle: RePEc:eee:ecolet:v:136:y:2015:i:c:p:55-58
    DOI: 10.1016/j.econlet.2015.08.025
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    References listed on IDEAS

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    1. Itzhak Ben-David & David Hirshleifer, 2012. "Are Investors Really Reluctant to Realize Their Losses? Trading Responses to Past Returns and the Disposition Effect," Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2485-2532.
    2. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
    3. Nicholas Barberis & Wei Xiong, 2009. "What Drives the Disposition Effect? An Analysis of a Long‐Standing Preference‐Based Explanation," Journal of Finance, American Finance Association, vol. 64(2), pages 751-784, April.
    4. Ravi Dhar & Ning Zhu, 2006. "Up Close and Personal: Investor Sophistication and the Disposition Effect," Management Science, INFORMS, vol. 52(5), pages 726-740, May.
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    Cited by:

    1. Cafferata, Alessia & Tramontana, Fabio, 2022. "Disposition Effect and its outcome on endogenous price fluctuations," MPRA Paper 113904, University Library of Munich, Germany.

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    More about this item

    Keywords

    Disposition effect; Tax distortions; December effect;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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