Upward Mobility Bias in the Selling Decisions of Retail Traders

48 Pages Posted: 29 Feb 2024

See all articles by Avijit Bansal

Avijit Bansal

Indian Institute of Management Calcutta

Joshy Jacob

Indian Institute of Management (IIM), Ahmedabad

Date Written: February 1, 2024

Abstract

Using price convexity as a measure of investor expectations about future price movement, the paper examines how its influence on selling decisions varies across stocks depending on their return ranks within a portfolio. We find that the negative association between price convexity and the selling propensity is significantly stronger for the lower-ranked stocks within the investor portfolio and becomes weaker as the rank of the stock in the portfolio increases. We find similar results even when all stocks in the portfolio have the same return sign or when the overall portfolio is trading at a gain, indicating that the phenomenon exists independently of the disposition effect and the rank effect. The findings suggest that while traders expect their lower-ranked stocks to improve in performance in the future, they do not have similar expectations from their higher-ranked stocks. The pattern of results indicates an asymmetry in the influence of extrapolative expectations on the selling decisions of traders.

Keywords: Price Path, Investor Behavior, Behavioral Finance, Disposition Bias, Upward Mobility Bias

JEL Classification: G11, G40, G41

Suggested Citation

Bansal, Avijit and Jacob, Joshy, Upward Mobility Bias in the Selling Decisions of Retail Traders (February 1, 2024). Available at SSRN: https://ssrn.com/abstract=4712907 or http://dx.doi.org/10.2139/ssrn.4712907

Avijit Bansal (Contact Author)

Indian Institute of Management Calcutta ( email )

Kolkata, 700104
India

HOME PAGE: http://www.avijitbansal.com

Joshy Jacob

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

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