Realization Utility

48 Pages Posted: 27 Oct 2008 Last revised: 29 Oct 2014

See all articles by Nicholas Barberis

Nicholas Barberis

Yale School of Management; National Bureau of Economic Research (NBER)

Wei Xiong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: October 2008

Abstract

A number of authors have suggested that investors derive utility from realizing gains and losses on assets that they own. We present a model of this "realization utility," analyze its predictions, and show that it can shed light on a number of puzzling facts. These include the disposition effect, the poor trading performance of individual investors, the higher volume of trade in rising markets, the effect of historical highs on the propensity to sell, the individual investor preference for volatile stocks, the low average return of volatile stocks, and the heavy trading associated with highly valued assets.

Suggested Citation

Barberis, Nicholas and Xiong, Wei, Realization Utility (October 2008). NBER Working Paper No. w14440, Available at SSRN: https://ssrn.com/abstract=1289674

Nicholas Barberis (Contact Author)

Yale School of Management ( email )

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P.O. Box 208200
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National Bureau of Economic Research (NBER)

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Wei Xiong

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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