An Experimental Study on Disposition Effect: Psychological Biases, Trading Strategies, and Assets Holding Time

18 Pages Posted: 17 Feb 2014 Last revised: 6 Mar 2014

See all articles by Tastaftiyan Risfandy

Tastaftiyan Risfandy

Sebelas Maret University - Faculty of Economics and Business

Mamduh M. Hanafi

Universitas Gadjah Mada (UGM) - Faculty of Economics and Business (FEB)

Date Written: February 18, 2014

Abstract

Disposition effect is one phenomenon in behavioral finance that describes investor tendency to sell winner stocks too early and hold loser stocks too long. The purpose of this paper is to examine the disposition effect from investor perspective when they respond to short-run and long-run return in their stocks. Disposition effect will also be associated with momentum trading, contrarian trading, and investor holding time of the stocks. Using experimental research, we find that psychological biases as regret aversion and loss aversion can explain disposition effect. It is demonstrated by investors who behave as momentum trading when respond to short-run return and become contrarian trader when they react to long-run return. This existence of disposition effect is also supported by another experiment session showing that there is a holding time discrepancy between winner and loser asset owned by investor.

Keywords: Disposition effect, momentum trader, contrarian trader, loss aversion, regret aversion, holding time, Indonesia

JEL Classification: C91, C92, G02

Suggested Citation

Risfandy, Tastaftiyan and Hanafi, Mamduh M., An Experimental Study on Disposition Effect: Psychological Biases, Trading Strategies, and Assets Holding Time (February 18, 2014). Available at SSRN: https://ssrn.com/abstract=2396569 or http://dx.doi.org/10.2139/ssrn.2396569

Tastaftiyan Risfandy (Contact Author)

Sebelas Maret University - Faculty of Economics and Business ( email )

Jl. Ir Sutami 36 A, Kentingan
Surakarta, Jawa Tengah 57126
Indonesia

Mamduh M. Hanafi

Universitas Gadjah Mada (UGM) - Faculty of Economics and Business (FEB) ( email )

Jl. Humaniora, Bulaksumur
Sleman
Jogjakarta, DI Yogyakarta 55281
Indonesia

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