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Wide framing disposition effect : an empirical study
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Brettschneider, Julia, Burro, Giovanni and Henderson, Vicky (2021) Wide framing disposition effect : an empirical study. Journal of Economic Behavior and Organization, 185 . pp. 330-347. doi:10.1016/j.jebo.2021.03.003
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WRAP-wide-framing-disposition-effect-empirical-study-Henderson-2021.pdf - Accepted Version Embargoed item. Restricted access to Repository staff only until 19 September 2022. Contact author directly, specifying your specific needs. - Requires a PDF viewer. Download (1074Kb) |
Official URL: https://doi.org/10.1016/j.jebo.2021.03.003
Abstract
We estimate the disposition effect for active traders in a large discount brokerage dataset containing US households trading records between 1991 and 1996. We apply a wide framing perspective, focusing on portfolios rather than individual stocks. We find that the disposition effect varies inversely with the proportion of stocks trading at a gain in the portfolio, nearly vanishing when this proportion reaches 50%. This is driven by how the realisation of gains and losses depends on the percentage of gains in the account. The probability to realise a loss increases with the percentage of gains in the account. The relation between the probability of realising a gain and the percentage of gains in the bank account follows a U-shape. We also estimate the change in the disposition effect when an investor realises more than one stock on a trading day. We find when investors sell a stock, they are much more likely to also realise another stock on the same day. In particular, selling a loss increases an investor’s propensity to sell a gain and vice versa. This key finding provides an explanation for the observed dependency of the disposition effect on the portfolio composition. We also propose several psychological explanations for our findings.
| Item Type: | Journal Article | ||||||||
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| Subjects: | B Philosophy. Psychology. Religion > BF Psychology H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
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| Divisions: | Faculty of Science > Statistics | ||||||||
| Library of Congress Subject Headings (LCSH): | Stock exchanges , Stock-flow analysis , Stock exchanges -- Psychological aspects, Stockholders -- Decision making -- Mathematical models, Risk-taking (Psychology) -- Economic aspects | ||||||||
| Journal or Publication Title: | Journal of Economic Behavior and Organization | ||||||||
| Publisher: | Elsevier | ||||||||
| ISSN: | 0167-2681 | ||||||||
| Official Date: | May 2021 | ||||||||
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| Volume: | 185 | ||||||||
| Page Range: | pp. 330-347 | ||||||||
| DOI: | 10.1016/j.jebo.2021.03.003 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
| RIOXX Funder/Project Grant: |
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