Investor Attention, Reference Points and the Disposition Effect
54 Pages Posted: 21 Jul 2019
Date Written: July 19, 2019
Using login data from an online trading brokerage, we test whether investors have a greater propensity to sell assets when they have made a gain rather than a loss relative to the price at their latest login to their account. This disposition effect on returns since latest login exists alongside the widely-documented disposition effect on returns since purchase. We also show a strong interaction effect: investors tend to hold on to stocks that have made either a negative return since latest login or a negative return since purchase. Even a small loss since latest login annuls the disposition effect of a much larger gain since purchase. We interpret these findings in a Prospect Theory inspired model of realization utility with enhanced loss aversion.
Keywords: disposition effect, attention, login, investor behavior
JEL Classification: G40, G41, D14
Suggested Citation: Suggested Citation