Do Losses Linger? Evidence from Proprietary Stock Traders
Posted: 22 May 2008
We examine how professional stock traders, working for a Nasdaq market maker, are influenced by their recent trading performance. Our results show that, in aggregate, when the traders incur morning losses, their desire to recoup these losses before the close of trading leads them to trade more aggressively in the afternoon. This behavior is consistent with the behavior underlying the disposition effect. An analysis of individual trading performance shows that traders who are more influenced by their prior trading losses perform far worse than those who are less influenced.
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