Disastrous Selling Decisions: The Disposition Effect and Natural Disasters

55 Pages Posted: 22 Apr 2019 Last revised: 18 Jul 2023

See all articles by Matthew Henriksson

Matthew Henriksson

University of Tennessee, Knoxville - Haslam College of Business

Date Written: July 18, 2023

Abstract

Combining county-level natural disaster data with individual investor transactions, I document an increased disposition effect for investors impacted by a natural disaster. This effect is increasing in disaster severity and decreasing in time following the event, suggesting that extreme natural disasters can significantly influence investor behavior, especially in the short term. These findings are not explained by liquidity needs, tax incentives, or informed trading. The effect strengthens with local stocks and investors’ duration at their residence. Moreover, the increased disposition effect of disaster-affected investors is consistent with investors deriving utility from damages caused by environmental influences and realized gains/losses.

Keywords: The Disposition Effect, Investor Behavior, Natural Disasters, Realization Utility

JEL Classification: G02, G11, G12

Suggested Citation

Henriksson, Matthew, Disastrous Selling Decisions: The Disposition Effect and Natural Disasters (July 18, 2023). Available at SSRN: https://ssrn.com/abstract=3358609 or http://dx.doi.org/10.2139/ssrn.3358609

Matthew Henriksson (Contact Author)

University of Tennessee, Knoxville - Haslam College of Business ( email )

453 Haslam Business Building
Knoxville, TN 37996-4140
United States

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