Do Large Gains Make Willing Sellers?

Abstract

Using unique real estate data that allow for accurately-measured capital gains, we examine whether sell propensities depend on the magnitude of a seller's capital gain. We find that short-term sell propensities are flat over losses and increasing in gains. Consistent with their higher sell propensities, selling prices are lower for properties with larger gains. Large-sized short-term stock investments also have sell propensities that are flat over losses and increasing in gains, although the sell propensities of typical-sized short-term stock investments are V-shaped (Ben-David and Hirshleifer (2012)). Our findings provide empirical support for the realization utility theories of Barberis and Xiong (2012) as well as Ingersoll and Jin (2013).

Keywords: Real Estate, Sell Propensity, Capital Gains, Realization Utility, Disposition Effect

JEL Classification: G2, G11, R21