Portfolio Inattention, Unrealized Profit, and Threshold-Based Selling Strategies

Abstract

Using unique data on investors' both trading and browsing histories, we document a novel pattern of investor inattention linked to unrealized profits of investments. We find that investors are less attentive to their positions when the unrealized profits are small compared to when the profits are large. This finding suggests that investors adopt a threshold-based selling strategy as predicted by some realization-utility models and conserve their attention when a sale is unlikely. We further show that investors' decisions to pay portfolio attention follow a fundamentally different process from their decisions to sell their investment positions after paying attention.

Keywords: Portfolio inattention, Realization preference, Disposition effect, Mutual fund investors

JEL Classification: G02, G11, H31