Determinants of Disposition and Reverse Disposition Effects

35 Pages Posted: 27 Mar 2009

See all articles by Andreas Krause

Andreas Krause

University of Bath - Department of Economics

K.C. John Wei

Hong Kong Polytechnic University

Zhishu Yang

Tsinghua University - School of Economics & Management

Date Written: March 27, 2009

Abstract

We develop a new measure for disposition effects based on the average length of a trading strategy and whether it is loss-making or profitable. Using this new measure, we are able to evaluate disposition effects in more detail than has been possible previously. We find for the first time the existence of disposition and reverse disposition effects. The reverse disposition effects are particularly prominent during falling markets, which is consistent with the prediction of Barberis and Xiong's (2008) model. Finally, the behavioral bias reduces for more experienced traders, traders holding investments for a longer period, and traders using buy strategies.

Keywords: Behavioral bias, Disposition effect, Investor characteristics

JEL Classification: G12, G14

Suggested Citation

Krause, Andreas and Wei, Kuo-Chiang (John) and Yang, Zhishu, Determinants of Disposition and Reverse Disposition Effects (March 27, 2009). Available at SSRN: https://ssrn.com/abstract=1369114 or http://dx.doi.org/10.2139/ssrn.1369114

Andreas Krause

University of Bath - Department of Economics ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Kuo-Chiang (John) Wei

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Zhishu Yang (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62771769 (Phone)
+86-10-62785562 (Fax)

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