The Portfolio-Driven Disposition Effect

60 Pages Posted: 6 Mar 2018 Last revised: 6 Jun 2022

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 Mississippi - School of Business Administration

Baolian Wang

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

Jared Williams

University of South Florida

Date Written: June 3, 2022

Abstract

Using retail trading and experimental data from the US and China, we show that the disposition effect is significantly stronger when an investor’s portfolio is at a loss, a phenomenon we label “the portfolio-driven disposition effect” (PDDE). We show that the PDDE affects seller-initiated trading volume and stock returns around and following earnings announcements, and that it is associated with a reduction in investors’ future trading performance. In our trading game experiments, the PDDE is significantly stronger among subjects whose survey responses are consistent with Thaler’s (1985) principles of mental framing, suggesting the PDDE is driven by hedonic mental accounting.

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 (June 3, 2022). PBCSF-NIFR Research Paper, 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 Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
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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