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Financial attention and the disposition effect

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  • Dierick, Nicolas
  • Heyman, Dries
  • Inghelbrecht, Koen
  • Stieperaere, Hannes

Abstract

Using a novel brokerage dataset covering individual investors’ login and stock trading behavior, we investigate the severity of the disposition effect as a function of attention. Our results show that more attentive investors trade less in line with the disposition effect, suggesting a comparative advantage in incorporating information into financial decision making. Furthermore, we find that high attention is related to a stronger tendency to sell moderate losses, as compared to large ones, while low attention increases an investor’s likelihood to sell extreme, rather than moderate, profits. These results are in line with the theory of cognitive dissonance and saliency effects.

Suggested Citation

  • Dierick, Nicolas & Heyman, Dries & Inghelbrecht, Koen & Stieperaere, Hannes, 2019. "Financial attention and the disposition effect," Journal of Economic Behavior & Organization, Elsevier, vol. 163(C), pages 190-217.
  • Handle: RePEc:eee:jeborg:v:163:y:2019:i:c:p:190-217
    DOI: 10.1016/j.jebo.2019.04.019
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    Keywords

    Investor behavior; Disposition effect; Attention allocation;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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