Download This PaperConsumption out of Fictitious Capital Gains and Selective Inattention
59 Pages Posted: 11 May 2020 Last revised: 4 Jan 2021
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Consumption out of Fictitious Capital Gains and Selective Inattention
The Consumption Effects of the Disposition to Sell Winners and Hold Losers
Date Written: December 31, 2020
Abstract
Do retail investors’ behavioral biases in trading directly affect their consumption out of stock market wealth? We exploit a natural experiment that changed the displayed purchase prices in investors’ online portfolios. Investors are more likely to sell and consume on average 25% of “fictitious” capital gains, i.e., displayed capital gains under the new purchase prices that are capital losses under the actual purchase prices. We argue that investors are selectively inattentive: they are more responsive when fictitious gains are larger and actual losses are smaller, they notice fictitious losses, and they react even when actual purchase prices are very salient.
Keywords: Inattention, Disposition Effect, Consumption Out of Stock Market Wealth
JEL Classification: G5, D90, G41, D14
Suggested Citation: Suggested Citation
Michaela Pagel (Contact Author)
Washington University in St. Louis - John M. Olin Business School ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States