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The disposition effect in securities trading: an experimental analysis

Weber, Martin and Camerer, Colin F. (1998) The disposition effect in securities trading: an experimental analysis. Journal of Economic Behavior & Organization, 33 (2). pp. 167-184. ISSN 0167-2681. http://resolver.caltech.edu/CaltechAUTHORS:20110210-132100255

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Abstract

The ‘disposition effect’ is the tendency to sell assets that have gained value (‘winners’) and keep assets that have lost value (‘losers’). Disposition effects can be explained by the two features of prospect theory: the idea that people value gains and losses relative to a reference point (the initial purchase price of shares), and the tendency to seek risk when faced with possible losses, and avoid risk when a certain gain is possible. Our experiments were designed to see if subjects would exhibit disposition effects. Subjects bought and sold shares in six risky assets. Asset prices fluctuated in each period. Contrary to Bayesian optimization, subjects did tend to sell winners and keep losers. When the shares were automatically sold after each period, the disposition effect was greatly reduced.


Item Type:Article
Related URLs:
URLURL TypeDescription
http://dx.doi.org/10.1016/S0167-2681(97)00089-9 DOIUNSPECIFIED
http://www.sciencedirect.com/science/article/B6V8F-3SWSJJT-2/2/53d9f3900c5f10bc8ad32568c2a6f0cePublisherUNSPECIFIED
Additional Information:© 1998 Published by Elsevier Science B.V. Received 10 July 1995; revised 24 September 1996; accepted 1 October 1997; Available online 9 June 1998. Thanks to the audiences at the BoWo IV conference, Terry O’Dean, and two anonymous referees, for comments.
Subject Keywords:Disposition effect; Prospect theory; Trading volume
Classification Code:JEL classification codes: 051
Record Number:CaltechAUTHORS:20110210-132100255
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20110210-132100255
Official Citation:Martin Weber, Colin F. Camerer, The disposition effect in securities trading: an experimental analysis, Journal of Economic Behavior & Organization, Volume 33, Issue 2, January 1998, Pages 167-184, ISSN 0167-2681, DOI: 10.1016/S0167-2681(97)00089-9. (http://www.sciencedirect.com/science/article/B6V8F-3SWSJJT-2/2/53d9f3900c5f10bc8ad32568c2a6f0ce)
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:22113
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:11 Feb 2011 23:11
Last Modified:11 Feb 2011 23:12

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