Financial Attitudes, Behaviours, and the Disposition Effect
54 Pages Posted: 13 Mar 2019
Date Written: February 21, 2019
It has been widely studied that investors suffer from the tendency to realize gains too quickly, while carrying losses too long --- also known as the disposition effect. Previous research on the phenomenon finds that there is a substantial heterogeneity with regards to the magnitude of investors' disposition effects. In this regard, we conduct an experiment in order to relate the disposition effect to subjects' self-stated financial attitudes and behaviours. We find that US investors' financial attitudes and behaviours can be captured by the following four dimensions: "financial planning," "anxiety," "interest in financial issues," and "impulsive financial decision-making." Furthermore, these dimensions reveal that investors who focus more on the long-term implications of their financial decisions exhibit lower disposition effects on average.
Keywords: disposition effect, experimental finance, financial attitudes and behaviour
JEL Classification: D12, D14, G11, G41
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