The Portfolio-Driven Disposition Effect
66 Pages Posted: 6 Mar 2018 Last revised: 28 May 2019
Date Written: May 25, 2019
In simple univariate tests, the disposition effect for a stock nearly disappears if the portfolio is at a gain. We find a large disposition effect when the portfolio is at a loss. The portfolio-driven disposition effect that we document is not explained by extreme returns, portfolio rebalancing, simultaneous transactions, or investor sophistication/skill. We consider hedonic mental accounting and preferences over both paper and realized gains/losses as potential explanations for our findings.
Keywords: Disposition Effect, Realization Utility
JEL Classification: G11, G12, G40
Suggested Citation: Suggested Citation