Measuring the Disposition Effect
13 Pages Posted: 8 Feb 2020
Date Written: January 6, 2020
Despite hundreds of papers confirming the disposition effect, little attention has been devoted to measuring it. Using simulated and empirical data, this paper fills this gap and compares different methods. The results show that Odean's (1998) measure performs better than Weber & Camerer's (1998) approach and that the disposition effect estimates are very sensitive to whether paper gains and losses are counted every day of the sample period or only on days with sales, especially for investors who do not frequently monitor their portfolios.
Keywords: Disposition effect, Individual investors, Behavioral finance
JEL Classification: G11, G40
Suggested Citation: Suggested Citation