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How Does Learning and Education Help to Overcome the Disposition Effect?

Author

Listed:
  • Tarvo Vaarmets
  • Kristjan Liivamägi
  • Tõnn Talpsepp

Abstract

The paper assesses how intelligence, education, and learning affect the disposition effect using our exhaustive NASDAQ OMX Tallinn dataset. We employ survival analysis to show that higher intelligence and stronger learning abilities as measured by education level and the type of education lessen the disposition effect. More highly educated and intelligent investors also learn faster by trading. We find that mathematical abilities are beneficial for overcoming the disposition effect and propose that learning ability is one of the most important components of intelligence in affecting the disposition effect.

Suggested Citation

  • Tarvo Vaarmets & Kristjan Liivamägi & Tõnn Talpsepp, 2019. "How Does Learning and Education Help to Overcome the Disposition Effect?," Review of Finance, European Finance Association, vol. 23(4), pages 801-830.
    • Handle: RePEc:oup:revfin:v:23:y:2019:i:4:p:801-830.
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    File URL: http://hdl.handle.net/10.1093/rof/rfy006
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    Citations

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    Cited by:

    1. Talpsepp, Tõnn & Tänav, Anne-Liis, 2021. "Do gender, age and education affect herding in the real estate market?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 32(C).
    2. Gutiérrez-Nieto, Begoña & Ortiz, Cristina & Vicente, Luis, 2023. "A bibliometric analysis of the disposition effect: Origins and future research avenues," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    3. Paraboni, Ana Luiza & da Costa, Newton, 2021. "Improving the level of financial literacy and the influence of the cognitive ability in this process," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 90(C).
    4. De Winne, Rudy, 2021. "Measuring the disposition effect," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    5. Juan Carlos Matallín‐Sáez & Amparo Soler‐Domínguez & Salvador Navarro‐Montoliu & Diego Víctor de Mingo‐López, 2022. "Investor behavior and the demand for conventional and socially responsible mutual funds," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(1), pages 46-59, January.
    6. 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).
    7. Zhang, Xiaotao & Wang, Ziqiao & Hao, Jing & Liu, Jiubiao, 2022. "Stock market entry timing and retail investors' disposition effect," International Review of Financial Analysis, Elsevier, vol. 82(C).
    8. Talpsepp, Tõnn & Vaarmets, Tarvo, 2019. "The disposition effect, performance, stop loss orders and education," Journal of Behavioral and Experimental Finance, Elsevier, vol. 24(C).
    9. Alexia GAUDEUL & Caterina GIANNETTI, 2023. "Trade-offs in the design of financial algorithms," Discussion Papers 2023/288, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

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