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Debiasing the disposition effect by reducing the saliency of information about a stock's purchase price

Frydman, Cary and Rangel, Antonio (2014) Debiasing the disposition effect by reducing the saliency of information about a stock's purchase price. Journal of Economic Behavior & Organization, 107 . pp. 541-552. ISSN 0167-2681. PMCID PMC4357845. http://resolver.caltech.edu/CaltechAUTHORS:20150212-072036420

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Abstract

The disposition effect refers to the empirical fact that investors have a higher propensity to sell risky assets with capital gains compared to risky assets with capital losses, and it has been associated with low trading performance. We use a stock trading laboratory experiment to investigate if it is possible to reduce subjects’ tendency to exhibit a disposition effect by making information about a stock's purchase price, and thus about capital gains and losses, less salient. We compare two experimental conditions: a high-saliency condition in which the purchase price of a stock is prominently displayed by the trading software, and a low-saliency condition in which it is not displayed at all. We find that individuals exhibit a disposition effect in the high-saliency condition, and that the effect is 25% smaller in the low-saliency condition. This suggests that it is possible to debias the disposition effect by reducing the saliency with which information about a stock's purchase price is displayed on financial statements and online trading platforms.


Item Type:Article
Related URLs:
URLURL TypeDescription
http://dx.doi.org/10.1016/j.jebo.2014.01.017 DOIArticle
http://www.sciencedirect.com/science/article/pii/S0167268114000316PublisherArticle
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2212494SSRNDiscussion Paper
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4357845PubMed CentralArticle
Additional Information:© 2014 Elsevier B.V. Received 16 February 2013; Received in revised form 24 January 2014; Accepted 26 January 2014; Available online 5 February 2014. Financial support from NSF Economics, DRSM and IGERT and the Lipper Foundation is gratefully acknowledged.
Funders:
Funding AgencyGrant Number
NSFUNSPECIFIED
Lipper FoundationUNSPECIFIED
Subject Keywords:Debiasing; Disposition effect; Attention; Behavioral finance; Realization utility; Decision mistakes
Classification Code:JEL classification: G02; G11
PubMed Central ID:PMC4357845
Record Number:CaltechAUTHORS:20150212-072036420
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20150212-072036420
Official Citation:Cary Frydman, Antonio Rangel, Debiasing the disposition effect by reducing the saliency of information about a stock's purchase price, Journal of Economic Behavior & Organization, Volume 107, Part B, November 2014, Pages 541-552, ISSN 0167-2681, http://dx.doi.org/10.1016/j.jebo.2014.01.017. (http://www.sciencedirect.com/science/article/pii/S0167268114000316)
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:54752
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:13 Feb 2015 05:29
Last Modified:24 Jul 2017 17:56

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