The Portfolio-Driven Disposition Effect

66 Pages Posted: 6 Mar 2018 Last revised: 28 May 2019

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 South Florida Muma College of Business

Baolian Wang

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

Jared Williams

University of South Florida

Date Written: May 25, 2019

Abstract

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

An, Li and Engelberg, Joseph and Henriksson, Matthew and Wang, Baolian and Williams, Jared, The Portfolio-Driven Disposition Effect (May 25, 2019). 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 South Florida Muma College of Business ( email )

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