The Portfolio-Driven Disposition Effect

38 Pages Posted: 6 Mar 2018 Last revised: 13 May 2018

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management

Matthew Henriksson

University of South Florida Muma College of Business

Jared Williams

University of South Florida

Date Written: May 4, 2018

Abstract

In simple univariate tests, we find no disposition effect for a stock if the remaining portfolio is at a gain. We find a large disposition effect only when the remaining portfolio is at a loss. The portfolio-driven disposition effect we document is not explained by extreme returns, portfolio rebalancing, simultaneous transactions, or investor sophistication/skill. The evidence suggests investors’ utility comes from both paper gains and losses and realized gains and losses; and when their portfolio has paper losses, they compensate by realizing gains.

Keywords: Disposition Effect, Realization Utility

JEL Classification: G11, G12, G40

Suggested Citation

Engelberg, Joseph and Henriksson, Matthew and Williams, Jared, The Portfolio-Driven Disposition Effect (May 4, 2018). Available at SSRN: https://ssrn.com/abstract=3126997 or http://dx.doi.org/10.2139/ssrn.3126997

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Matthew Henriksson

University of South Florida Muma College of Business ( email )

4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States

Jared Williams (Contact Author)

University of South Florida ( email )

Tampa, FL 33620
United States

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