Presentation Slides for 'Are Investors Really Reluctant to Realize Their Losses? Trading Responses to Past Returns and the Disposition Effect'

Abstract

We examine how investor preferences and beliefs affect trading in relation to past gains and losses. The probability of selling as a function of profit is V-shaped; at short holding periods, investors are more likely to sell big losers than small ones. There is little evidence of an upward jump in selling at zero profits. These findings provide no clear indication that realization preference explains trading. Furthermore, the disposition effect is not driven by a simple direct preference for selling a stock by virtue of having a gain versus loss. Trading based on belief revisions can potentially explain these findings.
Paper available at: https://ssrn.com/abstract=1876594.

Keywords: disposition effect, realization preference, loss avoidance, loss aversion, prospect theory, individual investors

JEL Classification: G11, G12, G14