Are Investors Reluctant to Realize Their Losses?

34 Pages Posted: 1 Jun 1998  

Terrance Odean

University of California, Berkeley - Haas School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 1997

Abstract

I test the disposition effect, the tendency of investors to hold losing investments too long and sell winning investments too soon, by analyzing trading records for 10,000 accounts at a large
discount brokerage house. These investors demonstrate a strong preference for realizing winners rather than losers. Their behavior does not appear to be motivated by a desire to rebalance
portfolios, or to avoid the higher trading costs of low price stocks. Nor is it justified by subsequent portfolio performance. For taxable investments, it is sub-optimal and leads to lower
after-tax returns. Tax-motivated selling is most evident in December.

JEL Classification: G10, G11

Suggested Citation

Odean, Terrance, Are Investors Reluctant to Realize Their Losses? (December 1997). Available at SSRN: https://ssrn.com/abstract=94142 or http://dx.doi.org/10.2139/ssrn.94142

Terrance Odean (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-6767 (Phone)
510-666-2561 (Fax)

HOME PAGE: http://www.haas.berkeley.edu/faculty/odean.html

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