Transparency and Investment Decisions: Evidence from the Disposition Effect

46 Pages Posted: 27 May 2017 Last revised: 13 Apr 2020

See all articles by Marcel Lukas

Marcel Lukas

University of St. Andrews

Arman Eshraghi

Cardiff Business School

Jo Danbolt

University of Edinburgh Business School

Date Written: May 26, 2017

Abstract

The wealth-diminishing tendency of investors to forgo loss realization in favor of gain realization, known as the disposition effect, is considerably lower in a transparent trading environment. Using proprietary data from a social trading platform, we analyze individual trades as portfolios become publicly visible in multiple stages. Findings show that the disposition effect diminishes about 35% when trades and holdings are unhidden, and this is robust to alternative explanations. Inter alia, we identify the impact of ‘transparency culture’ on trading behavior through differences between the former West and East Germany in light of the latter’s historical exposure to state surveillance.

Keywords: Disposition Effect, Transparency, Social Trading, Fund Management, Portfolio Disclosure

JEL Classification: G02, G11

Suggested Citation

Lukas, Marcel and Eshraghi, Arman and Danbolt, Jo, Transparency and Investment Decisions: Evidence from the Disposition Effect (May 26, 2017). Available at SSRN: https://ssrn.com/abstract=2975086 or http://dx.doi.org/10.2139/ssrn.2975086

Marcel Lukas (Contact Author)

University of St. Andrews ( email )

The Gateway
Gateway
St. Andrews, Fife KY16 9SS
United Kingdom

Arman Eshraghi

Cardiff Business School ( email )

Colum Drive
Cardiff, CF10 3EU
United Kingdom

Jo Danbolt

University of Edinburgh Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

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