Disposition Effect across Distinct Investor Categories in a Tax-Free Context: Are Team Dynamics and Cognitive Dissonance behind It?

58 Pages Posted: 12 Apr 2021

See all articles by Alexander de Groot

Alexander de Groot

IE University

Laura Núñez-Letamendia

IE Business School, IE University; IE University, IE Business School

Olivier de Groot

affiliation not provided to SSRN

Date Written: April 11, 2021

Abstract

Building on recent literature and employing survival analysis on trading data, we document differences in the strength and direction of the disposition effect on distinct categories of investors: (i) individuals not receiving professional advice; (ii) individuals receiving it; (iii) professional managers of delegated retail portfolios; (iv) professional managers of funds/institutional portfolios. We also find that the disposition effect is contingent upon paper gain-loss magnitudes in a more complex way than the V-shape proposed by the literature, and that market ups-downs do not exert influence on the propensity to this bias. We interpret our results using alternative explanations of investor behavior.

Keywords: Disposition effect, Investor behavior, behavioral biases, financial markets, financial advice, psychological effects

JEL Classification: G11, G40, G41

Suggested Citation

de Groot, Alexander and Núñez-Letamendia, Laura and Núñez-Letamendia, Laura and de Groot, Olivier, Disposition Effect across Distinct Investor Categories in a Tax-Free Context: Are Team Dynamics and Cognitive Dissonance behind It? (April 11, 2021). Available at SSRN: https://ssrn.com/abstract=3824349 or http://dx.doi.org/10.2139/ssrn.3824349

Alexander De Groot

IE University ( email )

Castellón de la Plana 8
Madrid
Spain

Laura Núñez-Letamendia (Contact Author)

IE University, IE Business School ( email )

Calle Maria de Molina 12
Madrid, Madrid 28006
Spain
649444811 (Phone)
28006 (Fax)

IE Business School, IE University ( email )

Finance Department
Castellon de la Plana, 8
Madrid, 28006
Spain
+34649444811 (Phone)

Olivier De Groot

affiliation not provided to SSRN

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