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Retail investors’ disposition effect and order choices

Author

Listed:
  • Rudy De Winne

    (LIDAM, Louvain Finance, Université catholique de Louvain)

  • Nhung Luong

    (LIDAM, Louvain Finance, Université catholique de Louvain)

  • Stefan Palan

    (Institute of Banking and Finance, University of Graz)

Abstract

Retail investors are prone to the disposition effect and submit many more limit orders than market orders. Mechanical effects stemming from the price-contingency conditions for order executions can lead these limit orders to inflate an investor's measured disposition effect (Linnainmaa 2010). Our paper is the first to demonstrate that the relationship between the disposition effect and order choices is bi-directional. Using trading data of thousands of investors, we show that investors who are prone to the disposition effect differ from others in their use of limit orders and in their choice of limit prices.

Suggested Citation

  • Rudy De Winne & Nhung Luong & Stefan Palan, 2020. "Retail investors’ disposition effect and order choices," Working Paper Series, Social and Economic Sciences 2020-02, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
  • Handle: RePEc:grz:wpsses:2020-02
    as

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    References listed on IDEAS

    as
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