How Speculative Asset Characteristics Shape Retail Investors’ Selling Behavior

51 Pages Posted: 12 Jan 2023 Last revised: 31 Jan 2023

See all articles by Sabine Bernard

Sabine Bernard

Leibniz Institute for Financial Research SAFE

Martin Weber

University of Mannheim - Department of Banking and Finance

Benjamin Loos

UNSW

Date Written: January 12, 2023

Abstract

Using German and US brokerage data we find that investors are more likely to sell speculative stocks trading at a gain. Investors’ gain realizations are monotonically increasing in a stock’s speculativeness. This translates into a high disposition effect for speculative and a much lower disposition effect for non-speculative stocks. Our findings hold across asset classes (stocks, passive, and active funds) and explain cross-sectional differences in investor selling behavior which previous literature attributed primarily to investor demographics. Our results are robust to rank or attention effects and can be linked to realization utility and rolling mental account.

Keywords: Selling Behavior, Disposition Effect, Retail Investor, Speculation, Higher Moments of Return, Realization Utility

JEL Classification: D14, D81, D9, G11

Suggested Citation

Bernard, Sabine and Weber, Martin and Loos, Benjamin, How Speculative Asset Characteristics Shape Retail Investors’ Selling Behavior (January 12, 2023). SAFE Working Paper No. 378, Available at SSRN: https://ssrn.com/abstract=4323051 or http://dx.doi.org/10.2139/ssrn.4323051

Sabine Bernard (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

Benjamin Loos

UNSW ( email )

Australia

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