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A heterogeneous model of disposition effect

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Author Info
Mao-Wei Hung
Hsiao-Yuan Yu
Abstract

A portfolio choice model is provided to illustrate the disposition effect under irrational belief in mean reversion assumption. Higher cognitive reference, stronger irrational belief in mean reversion magnitude and less risk aversion all strengthen the disposition effect in the model. The equilibrium market interest rate is priced after the market clearing condition is employed. The grater disposition effect reduces the capital mobility from the stock market to the bond market and thus mitigates the dropping of the market interest rate.

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Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 18 (October)
Pages: 2147-2157
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Handle: RePEc:taf:applec:v:38:y:2006:i:18:p:2147-2157

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Leonid Kogan & Raman Uppal, . "Risk Aversion and Optimal Portfolio Policies in Partial and General Equilibrium Economies," Rodney L. White Center for Financial Research Working Papers 13-00, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
  2. Holman, Jill A & Graves, Philip E, 2002. "Implications of Consumer Heterogeneity in Time-Series Estimates of US Money Demand," Applied Economics, Taylor and Francis Journals, vol. 34(5), pages 659-65, March. [Downloadable!] (restricted)
  3. Mark Grinblatt & Bing Han, 2001. "The Disposition Effect and Momentum," University of California at Los Angeles, Anderson Graduate School of Management 1019, Anderson Graduate School of Management, UCLA. [Downloadable!]
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  4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  5. Nicholas Barberis & Richard Thaler, 2002. "A Survey of Behavioral Finance," NBER Working Papers 9222, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Constantinides, George M., 1984. "Optimal stock trading with personal taxes : Implications for prices and the abnormal January returns," Journal of Financial Economics, Elsevier, vol. 13(1), pages 65-89, March. [Downloadable!] (restricted)
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  7. Genesove, David & Mayer, Christopher, 2001. "Loss Aversion and Seller Behaviour: Evidence from the Housing Market," CEPR Discussion Papers 2813, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Terrance Odean, 1999. "Do Investors Trade Too Much?," American Economic Review, American Economic Association, vol. 89(5), pages 1279-1298, December. [Downloadable!] (restricted)
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