The Disposition Effect in Boom and Bust Markets

62 Pages Posted: 3 Nov 2018 Last revised: 27 Aug 2021

See all articles by Sabine Bernard

Sabine Bernard

Leibniz Institute for Financial Research SAFE; University of Mannheim - Department of Finance

Benjamin Loos

Technische Universität München (TUM) - TUM School of Management

Martin Weber

University of Mannheim - Department of Banking and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: October 12, 2018

Abstract

Studies investigating the disposition effect are based on data sets which mostly cover boom periods. However, the drivers of the disposition effect (preferences and beliefs of investors) are rather countercyclical. We use individual investor trading data from Germany covering several boom and bust periods (2001-2015). We show that the disposition effect is countercyclical, being higher in bust markets than in boom markets. Our findings are driven by individuals being 26% more likely to realize gains during busts than during booms. These changes in investors’ selling behavior can be linked to changes in their risk aversion and to their beliefs across financial market cycles.

Keywords: Disposition Effect, Financial Market Cycles, Household Finance, Retail Investor

JEL Classification: D14, G11, G28

Suggested Citation

Bernard, Sabine and Loos, Benjamin and Weber, Martin, The Disposition Effect in Boom and Bust Markets (October 12, 2018). Available at SSRN: https://ssrn.com/abstract=3265135 or http://dx.doi.org/10.2139/ssrn.3265135

Sabine Bernard (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

University of Mannheim - Department of Finance ( email )

L9, 1-2
Room 208
Mannheim, DE 68131
Germany
00496211811531 (Phone)

HOME PAGE: http://www.bwl.uni-mannheim.de/weber/team/

Benjamin Loos

Technische Universität München (TUM) - TUM School of Management ( email )

Arcisstr. 21
Munich, D-80290
Germany

HOME PAGE: http://www.professors.wi.tum.de/digitalfinance/home/

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
193
Abstract Views
1,369
rank
104,620
PlumX Metrics