Investor Sophistication, Learning and the Disposition Effect

28 Pages Posted: 16 May 2011

See all articles by Shaneera Boolel-Gunesh

Shaneera Boolel-Gunesh

University of Strasbourg - EM Strasbourg Business School

Marie-Hélène Broihanne

Strasbourg University, LaRGE Research Center, EM Strasbourg Business School

Maxime Merli

Strasbourg University, LaRGE Research Center, EM Strasbourg Business School

Date Written: February 2011

Abstract

This paper analyses the disposition effect at an individual level by studying the trading records of 20 379 investors over 1999-2006. As in previous studies, we confirm a huge heterogeneity among investors and we propose to explain these differences on the basis of financial sophistication and trading behavior proxies. Originally, we use direct sophistication variables: trading of foreign assets, derivative assets and bonds, and trading on both tax-free and traditional accounts. We show that these variables significantly reduce the level of the disposition effect. Furthermore, based on a dynamic panel data analysis, we question the ability of investors to correct their bias over time. Results show that the individual investor’s disposition effect decreases over time and that our sophistication variables play a role in the decrease.

Suggested Citation

Boolel-Gunesh, Shaneera and Broihanne, Marie-Hélène and Merli, Maxime, Investor Sophistication, Learning and the Disposition Effect (February 2011). International Conference of the French Finance Association (AFFI), 11-13 May 2011. Available at SSRN: https://ssrn.com/abstract=1833437 or http://dx.doi.org/10.2139/ssrn.1833437

Shaneera Boolel-Gunesh (Contact Author)

University of Strasbourg - EM Strasbourg Business School ( email )

61 Avenue de la Forêt Noire
Strasbourg, 67000
France

Marie-Hélène Broihanne

Strasbourg University, LaRGE Research Center, EM Strasbourg Business School ( email )

PEGE
61 avenue de la Forêt Noire
Strasbourg, 67000
France

Maxime Merli

Strasbourg University, LaRGE Research Center, EM Strasbourg Business School ( email )

PEGE
61 avenue de la Forêt Noire
Strasbourg, 67000
France

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