Disposition Effect and Loss Aversion: An Analysis Based on a Simulated Experimental Stock Market
AbstractWe experimentally investigate the existence of the disposition effect and loss aversion as its potential cause. Our approach includes three key characteristics: (i) An environment closely mimicking actual stock markets; (ii) Individual-specific reference prices; (iii) A direct test of loss aversion as a cause of the disposition effect. We find strong support for the existence of the disposition effect as an independent hypothesis. This is an improvement over previous studies, which tested this hypothesis only jointly with others. Our results also strongly point to loss aversion, of the type postulated by prospect theory, being a source of the disposition effect.
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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-Rev.
Length: 38 pages
Date of creation: Feb 2013
Date of revision: Apr 2013
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, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
- G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-27 (All new papers)
- NEP-CBE-2013-04-27 (Cognitive & Behavioural Economics)
- NEP-EXP-2013-04-27 (Experimental Economics)
- NEP-UPT-2013-04-27 (Utility Models & Prospect Theory)
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.:
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