Retail investors’ disposition effect and order choices

Working Paper Series, School of Business, Economics and Social Sciences, University of Graz

35 Pages Posted:

See all articles by Rudy De Winne

Rudy De Winne

UCLouvain - Louvain Finance

Nhung Luong

UCLouvain - Louvain Finance

Stefan Palan

University of Graz

Date Written: July 21, 2020

Abstract

Retail investors are prone to the disposition effect and submit many more limit orders than market orders. Mechanical effects stemming from the price-contingency conditions for order executions can lead these limit orders to inflate an investor's measured disposition effect (Linnainmaa 2010). Our paper is the first to demonstrate that the relationship between the disposition effect and order choices is bi-directional. Using trading data of thousands of investors, we show that investors who are prone to the disposition effect differ from others in their use of limit orders and in their choice of limit prices.

Keywords: retail investors, behavioral finance, disposition effect, order choices

JEL Classification: G11, G40

Suggested Citation

De Winne, Rudy and Luong, Nhung and Palan, Stefan, Retail investors’ disposition effect and order choices (July 21, 2020). Working Paper Series, School of Business, Economics and Social Sciences, University of Graz, Available at SSRN: https://ssrn.com/abstract=

Rudy De Winne

UCLouvain - Louvain Finance ( email )

Belgium
+3265323334 (Phone)

Nhung Luong

UCLouvain - Louvain Finance ( email )

Belgium
+32 65 32 34 92 (Phone)

Stefan Palan (Contact Author)

University of Graz ( email )

Universitätsstraße 15/F2
Graz, 8010
Austria
+433163807306 (Phone)
+433163809580 (Fax)

HOME PAGE: http://academic.palan.biz

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