The Information Content of Realized Losses
55 Pages Posted: 23 Nov 2014 Last revised: 5 Dec 2017
Date Written: December 4, 2017
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: Suggested Citation