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Exchange-traded certificates, education and the disposition effect

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  • da Silva, Paulo Pereira
  • Mendes, Victor

Abstract

This study establishes a link between the disposition effect present in the transactions of exchange-trade certificates (ETC), investor education and different dimensions of trading experience. Using transaction-level data of 35,508 individuals from a major Portuguese financial institution spanning from 1998 to 2017, we show that ETC investors exhibit, on average, strong disposition effect. Individuals are 151% more likely to sell an ETC when that financial instrument trades at a paper gain than when it trades at a paper loss. The level of education of individuals attenuates the disposition effect, with individuals holding a university degree presenting weaker disposition effect. The number of transactions of securities (and of derivatives in particular) and mutual fund trading experience also lessen the disposition effect. Nevertheless, neither education nor experience fully offset the disposition effect. Finally, the impact of experience as a moderator of the disposition effect is stronger amid most educated individuals.

Suggested Citation

  • da Silva, Paulo Pereira & Mendes, Victor, 2021. "Exchange-traded certificates, education and the disposition effect," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    • Handle: RePEc:eee:beexfi:v:29:y:2021:i:c:s2214635020303853
    DOI: 10.1016/j.jbef.2020.100456
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    More about this item

    Keywords

    Behavioral biases; Disposition effect; Certificates; Structured retail products;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G50 - Financial Economics - - Household Finance - - - General
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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