Ning Zhu () (School of Management) Ravi Dhar () (International Center for Finance)
Abstract
In this paper, we analyze the trading records of a major discount brokerage house to investigate the disposition effect, the tendency to sell winners too quickly than losers. In contrast to previous research that has demonstrated the disposition effect by aggregating across investors (Odean, 1998), our main objective is to identify individual differences in the disposition bias and explain this in terms of underlying investor characteristics. Building on the findings in experimental economics and self-correction in psychology, we hypothesize that investors' sophistication about financial markets and trading experience is responsible in part for the variation in individual disposition effect. Using demographic and socio-economic data as proxies for investors' sophistication, we find empirical evidence that wealthier and individual investors in professional occupations exhibit less disposition effect. Consistent with experimental economics, trading experience also tends to reduce the disposition effect. We provide guidelines for investment advisors, regulators and investment communities to utilize our findings and help investors make better decisions.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Find related papers by JEL classification: G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
Cited by: (explanations, 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.)