Consumption out of Fictitious Capital Gains and Selective Inattention

59 Pages Posted: 11 May 2020 Last revised: 4 Jan 2021

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: December 31, 2020

Abstract

Do retail investors’ behavioral biases in trading directly affect their consumption out of stock market wealth? We exploit a natural experiment that changed the displayed purchase prices in investors’ online portfolios. Investors are more likely to sell and consume on average 25% of “fictitious” capital gains, i.e., displayed capital gains under the new purchase prices that are capital losses under the actual purchase prices. We argue that investors are selectively inattentive: they are more responsive when fictitious gains are larger and actual losses are smaller, they notice fictitious losses, and they react even when actual purchase prices are very salient.

Keywords: Inattention, Disposition Effect, Consumption Out of Stock Market Wealth

JEL Classification: G5, D90, G41, D14

Suggested Citation

Loos, Benjamin and Meyer, Steffen and Pagel, Michaela, Consumption out of Fictitious Capital Gains and Selective Inattention (December 31, 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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
66
Abstract Views
533
rank
407,215
PlumX Metrics