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An Individual Level Analysis of the Disposition Effect: Empirical and Experimental Evidence

  • Weber, Martin


    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

  • Welfens, Frank


    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

The disposition effect describes investors’ common tendency of quitting a winning investment too soon and holding on to losing investments too long (Shefrin and Statman 1985). Our paper analyses individual level disposition effects using both account level field data as well as a controlled laboratory experiment. While we observe the disposition effect on aggregate, the extent to which a single decision maker is affected varies considerably across investors. We find overwhelming evidence for relative stability of individual disposition effects both within and across tasks, as well as across time. Learning, nevertheless, attenuates the magnitude of the effect strongly both within tasks and over time. In accordance with prior research, we also document that frequent traders sell their winners less and their losers more often, resulting in lower disposition effects.

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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 07-45.

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Length: 0 pages
Date of creation: 27 Jun 2007
Date of revision:
Handle: RePEc:xrs:sfbmaa:07-45
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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  1. Genesove, David & Mayer, Christopher, 2001. "Loss Aversion and Seller Behaviour: Evidence from the Housing Market," CEPR Discussion Papers 2813, C.E.P.R. Discussion Papers.
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