At the Top of the Mind: Peak Prices and the Disposition Effect

Abstract

The disposition e ect is the reluctance to sell assets at a loss relative to a salient point of reference, typically assumed to be the purchase price. Using data on stocks and housing sales, we show that the peak price achieved by an asset during the investor's period of holding constitutes an additional salient reference point for asset owners that overlaps, and interacts, with the purchase price reference point. Peaks occurring before the investor purchased the asset do not a ect future sales, indicating that ownership a ects how investors form reference points.

Keywords: reference points, disposition e ect, selling homes, investor behaviour JEL Codes: G40, G41, D14

JEL Classification: G40, G41, D14