Disastrous Selling Decisions: The Disposition Effect and Natural Disasters

59 Pages Posted: 22 Apr 2019 Last revised: 3 Jan 2022

See all articles by Matthew Henriksson

Matthew Henriksson

University of Mississippi - School of Business Administration

Date Written: December 1, 2021

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 the length of 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 environmental damages 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 (December 1, 2021). Available at SSRN: https://ssrn.com/abstract=3358609 or http://dx.doi.org/10.2139/ssrn.3358609

Matthew Henriksson (Contact Author)

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States

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