Investor Attention, Reference Points and the Disposition Effect

96 Pages Posted: 21 Jul 2019 Last revised: 15 Mar 2021

See all articles by Edika Quispe-Torreblanca

Edika Quispe-Torreblanca

University of Oxford - Said Business School

John Gathergood

University of Nottingham - School of Economics

George Loewenstein

Carnegie Mellon University - Department of Social and Decision Sciences

Neil Stewart

Warwick Business School, University of Warwick

Date Written: March 14, 2021

Abstract

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

Quispe-Torreblanca, Edika and Gathergood, John and Loewenstein, George F. and Stewart, Neil, Investor Attention, Reference Points and the Disposition Effect (March 14, 2021). Available at SSRN: https://ssrn.com/abstract=3422790 or http://dx.doi.org/10.2139/ssrn.3422790

Edika Quispe-Torreblanca

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

HOME PAGE: http://www.sbs.ox.ac.uk/about-us/people/edika-quispe-torreblanca

John Gathergood (Contact Author)

University of Nottingham - School of Economics ( email )

Sir Clive Granger Building
University Park
Nottingham, NG7 2RD
United Kingdom

HOME PAGE: http://https://sites.google.com/site/gathergoodjohn/

George F. Loewenstein

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States
412-268-8787 (Phone)
412-268-6938 (Fax)

Neil Stewart

Warwick Business School, University of Warwick ( email )

Gibbet Hill Road
Coventry, West Midlands CV4 8UW
United Kingdom

HOME PAGE: http://www.stewart.warwick.ac.uk

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