The Consumption Effects of the Disposition to Sell Winners and Hold Losers

58 Pages Posted: 22 Jan 2020

See all articles by Benjamin Loos

Benjamin Loos

Technische Universität München (TUM) - TUM School of Management

Steffen Meyer

University of Southern Denmark - Department of Business and Economics; Danish Finance Institute

Michaela Pagel

Columbia University - Columbia Business School

Multiple version iconThere are 2 versions of this paper

Date Written: January 2020

Abstract

We use individual-level data on all security trades, holdings, spending, and income from an online retail bank. We study the effects of an exogenous change in the displayed purchase prices of the mutual funds in individuals’ portfolios. We find that individuals are more likely to sell what we call fictitious winners, i.e., funds that are winners under the newly displayed purchase price but are losers under the actual purchase price. We also document that individual consumption increases in response to realizing fictitious capital gains. We thus document a causal link among purchase prices, trades, and consumption using observational data and find that the trading and consumption results are more prevalent for less-informed investors. We thereby document a marginal propensity to consume out of (confused) capital gains, which is informative about the literature on consumption out of stock market wealth.

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Suggested Citation

Loos, Benjamin and Meyer, Steffen and Pagel, Michaela, The Consumption Effects of the Disposition to Sell Winners and Hold Losers (January 2020). NBER Working Paper No. w26668, Available at SSRN: https://ssrn.com/abstract=3522317

Benjamin Loos (Contact Author)

Technische Universität München (TUM) - TUM School of Management ( email )

Arcisstr. 21
Munich, D-80290
Germany

HOME PAGE: http://www.professors.wi.tum.de/digitalfinance/home/

Steffen Meyer

University of Southern Denmark - Department of Business and Economics ( email )

DK-5230 Odense
Denmark

Danish Finance Institute ( email )

Michaela Pagel

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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