The Portfolio-Driven Disposition Effect
38 Pages Posted: 6 Mar 2018 Last revised: 13 May 2018
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: Suggested Citation
