Investor Attention, Reference Points and the Disposition Effect
96 Pages Posted: 21 Jul 2019 Last revised: 15 Mar 2021
Date Written: March 14, 2021
Studies of reference-dependent behavior typically examine single reference points. Using data from an online brokerage, we examine the role of multiple reference points in trading behavior. We present a new model of the disposition effect in which paying attention to a stock price can create a new reference point. We show that, theoretically and empirically, in addition to a traditional disposition effect for returns since purchase there is also a disposition effect for returns since paying attention (measured by latest logins), and a strong interaction between the two reference points: even a small loss since last login nullifies the positive effect of a gain since purchase. These results have implications beyond investment decisions, for example for wage-setting practices and negotiations.
Keywords: reference point, disposition effect, attention, login, investor behavior
JEL Classification: G40, G41, D14
Suggested Citation: Suggested Citation