Are Investors Reluctant to Realize Their Losses?
University of California, Berkeley - Haas School of Business
I test the disposition effect, the tendency of investors to hold losing investments too long and sell winning investments too soon, by analyzing trading records for 10,000 accounts at a large
discount brokerage house. These investors demonstrate a strong preference for realizing winners rather than losers. Their behavior does not appear to be motivated by a desire to rebalance
portfolios, or to avoid the higher trading costs of low price stocks. Nor is it justified by subsequent portfolio performance. For taxable investments, it is sub-optimal and leads to lower
after-tax returns. Tax-motivated selling is most evident in December.
Number of Pages in PDF File: 34
JEL Classification: G10, G11working papers series
Date posted: June 1, 1998
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.453 seconds