IDEAS home Printed from https://ideas.repec.org/p/pdn/dispap/81.html
   My bibliography  Save this paper

Peer attention and the disposition effect

Author

Listed:
  • Minh-Lý Liêu

    (University of Paderborn)

Abstract

Social trading platforms allow investors to interact with each other. This paper studies the impact of peer attention on social trading platforms on investors' disposition effect. Using a difference-in-differences approach, I find a significant increase in the disposition effect when investors receive attention from their peers. This disposition effect increases as the number of other investors distributing likes to one another's trading decisions increases. This effect is driven both by holding on to losing positions longer and by closing winning positions faster. This finding may be explained by social facilitation theory. In the presence of others, investors want to achieve superior outcomes and limit their losses.

Suggested Citation

  • Minh-Lý Liêu, 2021. "Peer attention and the disposition effect," Working Papers Dissertations 81, Paderborn University, Faculty of Business Administration and Economics.
    • Handle: RePEc:pdn:dispap:81
    as

    Download full text from publisher

    File URL: http://groups.uni-paderborn.de/wp-wiwi/RePEc/pdf/dispap/DP81.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nicholas Barberis & Wei Xiong, 2009. "What Drives the Disposition Effect? An Analysis of a Long‐Standing Preference‐Based Explanation," Journal of Finance, American Finance Association, vol. 64(2), pages 751-784, April.
    2. Oehler, Andreas & Horn, Matthias & Wendt, Stefan, 2016. "Benefits from social trading? Empirical evidence for certificates on wikifolios," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 202-210.
    3. Cooper, David J. & Rege, Mari, 2011. "Misery loves company: Social regret and social interaction effects in choices under risk and uncertainty," Games and Economic Behavior, Elsevier, vol. 73(1), pages 91-110, September.
    4. Hermann, Daniel & Mußhoff, Oliver & Rau, Holger A., 2019. "The disposition effect when deciding on behalf of others," Journal of Economic Psychology, Elsevier, vol. 74(C).
    5. Pelster, Matthias & Hofmann, Annette, 2018. "About the fear of reputational loss: Social trading and the disposition effect," Journal of Banking & Finance, Elsevier, vol. 94(C), pages 75-88.
    6. Amit Seru & Tyler Shumway & Noah Stoffman, 2010. "Learning by Trading," The Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 705-739, February.
    7. Rau, Holger A., 2015. "The disposition effect in team investment decisions: Experimental evidence," University of Göttingen Working Papers in Economics 256, University of Goettingen, Department of Economics.
    8. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, vol. 59(3), pages 667-686, May.
    9. Da Costa, Newton & Goulart, Marco & Cupertino, Cesar & Macedo, Jurandir & Da Silva, Sergio, 2013. "The disposition effect and investor experience," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1669-1675.
    10. Francesca Gioia, 2017. "Peer effects on risk behaviour: the importance of group identity," Experimental Economics, Springer;Economic Science Association, vol. 20(1), pages 100-129, March.
    11. Kourtidis, Dimitrios & Šević, Željko & Chatzoglou, Prodromos, 2011. "Investors’ trading activity: A behavioural perspective and empirical results," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(5), pages 548-557.
    12. Berger, Elisabeth S.C. & Wenzel, Matthias & Wohlgemuth, Veit, 2018. "Imitation-related performance outcomes in social trading: A configurational approach," Journal of Business Research, Elsevier, vol. 89(C), pages 322-327.
    13. Justin Birru, 2015. "Editor's Choice Confusion of Confusions: A Test of the Disposition Effect and Momentum," The Review of Financial Studies, Society for Financial Studies, vol. 28(7), pages 1849-1873.
    14. Rau, Holger A., 2015. "The disposition effect in team investment decisions: Experimental evidence," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 272-282.
    15. Kromidha, Endrit & Li, Matthew C., 2019. "Determinants of leadership in online social trading: A signaling theory perspective," Journal of Business Research, Elsevier, vol. 97(C), pages 184-197.
    16. Hyuk Choe & Yunsung Eom, 2009. "The disposition effect and investment performance in the futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 29(6), pages 496-522, June.
    17. Lei Feng & Mark Seasholes, 2005. "Do Investor Sophistication and Trading Experience Eliminate Behavioral Biases in Financial Markets?," Review of Finance, Springer, vol. 9(3), pages 305-351, September.
    18. Dimitrios Kourtidis & Željko Ševi? & Prodromos Chatzoglou, 2011. "Investors' trading activity, a behavioural perspective: professionals vs. individuals," International Journal of Behavioural Accounting and Finance, Inderscience Enterprises Ltd, vol. 2(3/4), pages 346-366.
    19. Rawley Heimer, 2016. "Peer Pressure: Social Interaction and the Disposition Effect," Working Papers (Old Series) 1618, Federal Reserve Bank of Cleveland.
    20. Li, Yan & Yang, Liyan, 2013. "Prospect theory, the disposition effect, and asset prices," Journal of Financial Economics, Elsevier, vol. 107(3), pages 715-739.
    21. Tom Y. Chang & David H. Solomon & Mark M. Westerfield, 2016. "Looking for Someone to Blame: Delegation, Cognitive Dissonance, and the Disposition Effect," Journal of Finance, American Finance Association, vol. 71(1), pages 267-302, February.
    22. Kaustia, Markku & Knüpfer, Samuli, 2012. "Peer performance and stock market entry," Journal of Financial Economics, Elsevier, vol. 104(2), pages 321-338.
    23. Andrea Frazzini, 2006. "The Disposition Effect and Underreaction to News," Journal of Finance, American Finance Association, vol. 61(4), pages 2017-2046, August.
    24. Simon Gächter & Eric J. Johnson & Andreas Herrmann, 2022. "Individual-level loss aversion in riskless and risky choices," Theory and Decision, Springer, vol. 92(3), pages 599-624, April.
    25. Itzhak Ben-David & David Hirshleifer, 2012. "Are Investors Really Reluctant to Realize Their Losses? Trading Responses to Past Returns and the Disposition Effect," The Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2485-2532.
    26. Marco Cecchini & Emanuele Bajo & Paolo Maria Russo & Maurizio Sobrero, 2019. "Individual Differences in the Disposition Effect," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 20(1), pages 107-126, January.
    27. Frydman, Cary & Rangel, Antonio, 2014. "Debiasing the disposition effect by reducing the saliency of information about a stock's purchase price," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 541-552.
    28. Ravi Dhar & Ning Zhu, 2006. "Up Close and Personal: Investor Sophistication and the Disposition Effect," Management Science, INFORMS, vol. 52(5), pages 726-740, May.
    29. Shefrin, Hersh & Statman, Meir, 1985. "The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 777-790, July.
    30. David E. Bell, 1985. "Disappointment in Decision Making Under Uncertainty," Operations Research, INFORMS, vol. 33(1), pages 1-27, February.
    31. Rau, Holger A., 2014. "The disposition effect and loss aversion: Do gender differences matter?," Economics Letters, Elsevier, vol. 123(1), pages 33-36.
    32. repec:bla:jfinan:v:53:y:1998:i:5:p:1775-1798 is not listed on IDEAS
    33. Pelster, Matthias, 2019. "Attracting attention from peers: Excitement in social trading," Journal of Economic Behavior & Organization, Elsevier, vol. 161(C), pages 158-179.
    34. Lei Feng & Mark S. Seasholes, 2005. "Do Investor Sophistication and Trading Experience Eliminate Behavioral Biases in Financial Markets?," Review of Finance, European Finance Association, vol. 9(3), pages 305-351.
    35. Rawley Z. Heimer, 2016. "Peer Pressure: Social Interaction and the Disposition Effect," The Review of Financial Studies, Society for Financial Studies, vol. 29(11), pages 3177-3209.
    36. Liêu, L.M. & Pelster, M., 2020. "Framing and the disposition effect in a scopic regime," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 175-185.
    37. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hermann, Daniel & Mußhoff, Oliver & Rau, Holger A., 2019. "The disposition effect when deciding on behalf of others," Journal of Economic Psychology, Elsevier, vol. 74(C).
    2. Liêu, L.M. & Pelster, M., 2020. "Framing and the disposition effect in a scopic regime," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 175-185.
    3. De Winne, Rudy, 2021. "Measuring the disposition effect," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    4. Janssen, Dirk-Jan & Li, Jiangyan & Qiu, Jianying & Weitzel, Utz, 2020. "The disposition effect and underreaction to private information," Journal of Economic Dynamics and Control, Elsevier, vol. 113(C).
    5. 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).
    6. 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).
    7. Li, Jianbiao & Niu, Xiaofei & Li, Dahui & Cao, Qian, 2018. "Using Non-Invasive Brain Stimulation to Test the Role of Self-Control in Investor Behavior," EconStor Preprints 177890, ZBW - Leibniz Information Centre for Economics.
    8. Stephen L Cheung, 2024. "A meta-analysis of disposition effect experiments," Working Papers 2024-02, University of Sydney, School of Economics.
    9. Dorn, Daniel & Strobl, Günter, 2023. "Rational disposition effects: Theory and evidence," Journal of Banking & Finance, Elsevier, vol. 153(C).
    10. Kahya, Evrim Hilal & Ekinci, Cumhur, 2022. "Disposition bias among Borsa Istanbul investors: What do we know about type, size and trading frequency?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 35(C).
    11. Cafferata, Alessia & Tramontana, Fabio, 2022. "Disposition Effect and its outcome on endogenous price fluctuations," MPRA Paper 113904, University Library of Munich, Germany.
    12. van Dooren, Bono & Galema, Rients, 2018. "Socially responsible investors and the disposition effect," Journal of Behavioral and Experimental Finance, Elsevier, vol. 17(C), pages 42-52.
    13. Juanjuan Meng & Xi Weng, 2018. "Can Prospect Theory Explain the Disposition Effect? A New Perspective on Reference Points," Management Science, INFORMS, vol. 64(7), pages 3331-3351, July.
    14. Bachmann, Kremena, 2024. "Do you have a choice?: Implications for belief updating and the disposition effect," Journal of Economic Psychology, Elsevier, vol. 102(C).
    15. Niu, Xiaofei & Li, Jianbiao, 2019. "How Time Constraint Affects the Disposition Effect?," EconStor Preprints 194618, ZBW - Leibniz Information Centre for Economics.
    16. Marco Pleßner, 2017. "The disposition effect: a survey," Management Review Quarterly, Springer, vol. 67(1), pages 1-30, February.
    17. Eom, Yunsung, 2018. "The opposite disposition effect: Evidence from the Korean stock index futures market," Finance Research Letters, Elsevier, vol. 26(C), pages 261-265.
    18. Karolis Liaudinskas, 2022. "Human vs. Machine: Disposition Effect among Algorithmic and Human Day Traders," Working Paper 2022/6, Norges Bank.
    19. Choi, Darwin, 2019. "Disposition sales and stock market liquidity," Journal of Financial Markets, Elsevier, vol. 45(C), pages 19-36.
    20. Pelster, Matthias & Hofmann, Annette, 2018. "About the fear of reputational loss: Social trading and the disposition effect," Journal of Banking & Finance, Elsevier, vol. 94(C), pages 75-88.

    More about this item

    Keywords

    Social trading; transparency; disposition effect; online trading platforms.;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pdn:dispap:81. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: WP-WiWi-Info (email available below). General contact details of provider: https://edirc.repec.org/data/fwpadde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.