Beliefs and the Disposition Effect

48 Pages Posted: 30 Jan 2020 Last revised: 23 Mar 2021

See all articles by Steffen Andersen

Steffen Andersen

Copenhagen Business School - Department of Finance; CEPR

Tobin Hanspal

WU Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF)

Jimmy Martinez-Correa

Copenhagen Business School - Department of Economics; Danish Finance Institute

Kasper Meisner Nielsen

Copenhagen Business School - Department of Finance

Date Written: January 8, 2020

Abstract

This study examines whether heterogeneous beliefs contribute to the incidence of the disposition effect. We measure individuals’ optimism using elicited beliefs from incentivized experiments and surveys and link these measures to investment decisions using administrative register data. We find that optimistic beliefs lead to both a higher allocation of wealth to risky assets and a higher incidence of the disposition effect. We further find that subjective beliefs explain heterogeneity in the disposition effect which are not captured by risk preferences. Overall, our study documents that individuals’ beliefs play an important role in the prevalence of the disposition effect.

Keywords: Market expectations, Subjective beliefs, Disposition effect, Risk taking, Household finance, Experimental finance

JEL Classification: G02, G11, D84, D81

Suggested Citation

Andersen, Steffen and Hanspal, Tobin and Martinez-Correa, Jimmy and Nielsen, Kasper Meisner, Beliefs and the Disposition Effect (January 8, 2020). Available at SSRN: https://ssrn.com/abstract=3516567 or http://dx.doi.org/10.2139/ssrn.3516567

Steffen Andersen

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

CEPR ( email )

London
United Kingdom

Tobin Hanspal (Contact Author)

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1 1
Wien, 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Jimmy Martinez-Correa

Copenhagen Business School - Department of Economics ( email )

Denmark

Danish Finance Institute ( email )

Kasper Meisner Nielsen

Copenhagen Business School - Department of Finance ( email )

A4.17 Solbjerg Plads 3
Copenhagen, Frederiksberg 2000
Denmark

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