The Portfolio-Driven Disposition Effect

PBCSF-NIFR Research Paper

Journal of Finance forthcoming

78 Pages Posted: 6 Mar 2018 Last revised: 19 Jan 2024

See all articles by Li An

Li An

Tsinghua University - PBC School of Finance

Joseph Engelberg

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

Matthew Henriksson

University of Tennessee, Knoxville - Haslam College of Business

Baolian Wang

University of Florida - Department of Finance, Insurance and Real Estate

Jared Williams

University of South Florida

Date Written: October 26, 2023

Abstract

The disposition effect for a stock significantly weakens if the portfolio is at a gain, but is large when it is at a loss. We find this portfolio-driven disposition effect (PDDE) in four independent settings: US and Chinese archival data, as well as US and Chinese experiments. The PDDE is robust to a variety of controls in regression specifications and is not explained by extreme returns, portfolio rebalancing, tax considerations, or investor heterogeneity. Our evidence suggests investors form mental frames at the stock and portfolio level and these frames combine to generate the PDDE.

Keywords: Disposition Effect, Realization Utility

JEL Classification: G11, G12, G40

Suggested Citation

An, Li and Engelberg, Joseph and Henriksson, Matthew and Wang, Baolian and Williams, Jared, The Portfolio-Driven Disposition Effect (October 26, 2023). PBCSF-NIFR Research Paper, Journal of Finance forthcoming, Available at SSRN: https://ssrn.com/abstract=3126997 or http://dx.doi.org/10.2139/ssrn.3126997

Li An

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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 Tennessee, Knoxville - Haslam College of Business ( email )

453 Haslam Business Building
Knoxville, TN 37996-4140
United States

Baolian Wang

University of Florida - Department of Finance, Insurance and Real Estate ( email )

314 Stuzin Hall
Gainesville, FL 32611
United States

HOME PAGE: http://www.wangbaolian.com

Jared Williams (Contact Author)

University of South Florida ( email )

Tampa, FL 33620
United States

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