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

60 Pages Posted: 11 May 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: March 30, 2020

Abstract

We study the effects of an exogenous change in the displayed purchase prices of all mutual funds in individuals’ portfolios using data on all security trades, holdings, spending, and income from an online retail bank. 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 prices but are losers under the actual purchase prices. We then show that individual consumption increases in response to realizing fictitious winners, i.e., realizing fictitious capital gains even though the investors are subject to actual capital losses. The effects of fictitious capital gains on trading and consumption are more prevalent for less-informed investors. This marginal propensity to consume out of (confused) capital gains is thus informative about the literature on consumption out of stock market wealth.

Keywords: Disposition Effect, Consumption Out of Stock Market Wealth

JEL Classification: G5, D90, G41, D14

Suggested Citation

Loos, Benjamin and Meyer, Steffen and Pagel, Michaela, The Consumption Effects of the Disposition to Sell Winners and Hold Losers (March 30, 2020). Available at SSRN: https://ssrn.com/abstract=3576628 or http://dx.doi.org/10.2139/ssrn.3576628

Benjamin Loos

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 (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
32
Abstract Views
199
PlumX Metrics