Disposition Effect and Loss Aversion: An Analysis Based on a Simulated Experimental Stock Market
AbstractWe experimentally investigate the existence of and possible origin of the disposition effect. Our approach has three distinct characteristics: Firstly, we created an experimental environment that closely mimics a real stock market and were thus able to obtain and analyze trading behavior data that accurately depicts actual individual investor trading behavior. Secondly, based on a questionnaire survey we conducted during the experiment, we were able to pinpoint each individual participantfs reference point. This, in effect, allowed us to verify an independent hypothesis of the existence of the disposition effect. such an approach differs from the extant literature, where only a joint hypothesis has been examined so far. Thirdly, we measured individual loss aversion coefficients and directly tested whether loss aversion is a cause of the disposition effect. Our results indicate both the existence of the disposition effect as well as prospect theoryfs loss aversion being one of its sources.
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Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 13-02.
Length: 33 pages
Date of creation: Feb 2013
Date of revision:
disposition effect; loss aversion; investor behavior; experimental economics;
Other versions of this item:
- Kohsaka Youki & Grzegorz Mardyla & Shinji Takenaka & Yoshiro Tsutsui, 2013. "Disposition Effect and Loss Aversion: An Analysis Based on a Simulated Experimental Stock Market," Discussion Papers in Economics and Business 13-02-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Apr 2013.
- G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-09 (All new papers)
- NEP-CBE-2013-03-09 (Cognitive & Behavioural Economics)
- NEP-EVO-2013-03-09 (Evolutionary Economics)
- NEP-EXP-2013-03-09 (Experimental Economics)
- NEP-UPT-2013-03-09 (Utility Models & Prospect Theory)
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