Is the Aggregate Investor Reluctant to Realise Losses? Evidence from Taiwan

25 Pages Posted: 24 May 2007

See all articles by Brad M. Barber

Brad M. Barber

University of California, Davis

Yi-Tsung Lee

Peking University - Guanghua School of Management

Yu-Jane Liu

National Chengchi University (NCCU) - Department of Finance and Banking

Terrance Odean

University of California, Berkeley - Haas School of Business

Abstract

We ask whether the typical investor and the aggregate investor exhibit a bias known as the disposition effect, the tendency to sell investments that are held for a profit at a faster rate than investments held for a loss. We analyse all trading activity on the Taiwan Stock Exchange (TSE) for the five years ending in 1999. Using a dataset that contains all trades (over one billion) and the identity of every trader (nearly four million), we find that in aggregate, investors in Taiwan are about twice as likely to sell a stock if they are holding that stock for a gain rather than a loss. Eighty-four percent of all Taiwanese investors sell winners at a faster rate than losers. Individuals, corporations, and dealers are reluctant to realise losses, while mutual funds and foreigners, who together account for less than 5% of all trades (by value), are not.

Suggested Citation

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance, Is the Aggregate Investor Reluctant to Realise Losses? Evidence from Taiwan. European Financial Management, Vol. 13, No. 3, pp. 423-447, June 2007. Available at SSRN: https://ssrn.com/abstract=988209 or http://dx.doi.org/10.1111/j.1468-036X.2007.00367.x

Brad M. Barber (Contact Author)

University of California, Davis ( email )

Graduate School of Management
One Shields Avenue
Davis, CA 95616
United States
530-752-0512 (Phone)
530-752-2924 (Fax)

Yi-Tsung Lee

Peking University - Guanghua School of Management ( email )

Office 336, Guanghua Building 2
Beijing, Beijing 100871
China
(86-10) 6275 5742 (Phone)
(86-10) 6275 5742 (Fax)

Yu-Jane Liu

National Chengchi University (NCCU) - Department of Finance and Banking ( email )

64, Chih-nan Rd., Sec. 2, Mucha,
Taipei, 116
Taiwan ROC
(882)-2-2939-3091 ext. 81123 (Phone)

Terrance Odean

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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