Rolling Mental Accounts

58 Pages Posted: 2 Sep 2015 Last revised: 21 Feb 2017

See all articles by Cary Frydman

Cary Frydman

University of Southern California - Marshall School of Business

Samuel M. Hartzmark

University of Chicago - Booth School of Business

David H. Solomon

Boston College - Carroll School of Management

Date Written: April 10, 2016

Abstract

When investors sell one asset and quickly buy another (“reinvestment days”), their trades suggest the original mental account is not closed, but is instead rolled into the new asset. Investors display a rolled disposition effect, selling the new position when its value exceeds the investment in the original position. On reinvestment days, investors display no disposition effect (consistent with no disutility from realizing a loss) and make better selling decisions. Mutual funds exhibit a larger disposition effect when outflows prevent them from rolling accounts. Using a laboratory experiment, we show that reinvestment causally reduces the disposition effect and improves trading.

Suggested Citation

Frydman, Cary and Hartzmark, Samuel M. and Solomon, David H., Rolling Mental Accounts (April 10, 2016). 6th Miami Behavioral Finance Conference; Marshall School of Business Working Paper No. 17-2. Available at SSRN: https://ssrn.com/abstract=2653929 or http://dx.doi.org/10.2139/ssrn.2653929

Cary Frydman

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Samuel M. Hartzmark (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

David H. Solomon

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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