The Information Content of Realized Losses

55 Pages Posted: 23 Nov 2014 Last revised: 5 Dec 2017

Date Written: December 4, 2017

Abstract

Examining the trades of company insiders, I find that a sale of stock at a loss is a much more negative signal about future returns than a sale of stock at a gain. I consider a range of explanations for my results and find that the evidence is most consistent with the idea that investors derive direct disutility from selling a stock at a loss. Since selling a stock at a loss is painful, an investor who sells at a loss must have particularly negative information. This result offers a novel measurement of the strength of the disposition effect.

Keywords: realization utility, insider trading, disposition effect, behavioral finance

JEL Classification: G12

Suggested Citation

Kelly, Peter, The Information Content of Realized Losses (December 4, 2017). Available at SSRN: https://ssrn.com/abstract=2528878 or http://dx.doi.org/10.2139/ssrn.2528878

Peter Kelly (Contact Author)

University of Notre Dame ( email )

251 Mendoza
South Bend, IN 46637
United States

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