Knowledge Tree
disposition effect
Facts (18)
Sources
The Impact of Cognitive Biases on Professionals' Decision-Making frontiersin.org 9 facts
claimIndividual investors are impacted by overconfidence and the disposition effect, which is a consequence of loss aversion, in their decision-making.
measurementIn finance, measurement of the disposition effect at the individual level revealed that 20% of investors show no disposition effect or a reverse effect, according to Talpsepp (2011).
claimOverconfidence and the disposition effect are two cognitive biases frequently studied in investment decision-making, according to a systematic review by Kumar and Goyal (2015).
claimThe disposition effect is the tendency among investors to sell stock market winners too soon and hold on to losers too long, as defined by Shefrin and Statman (1985).
claimThe disposition effect originates from loss aversion, a concept described in prospect theory by Kahneman and Tversky (1979).
claimThe disposition effect is the tendency for investors to sell winning stocks too early while holding onto losing positions for too long, as defined by Shefrin and Statman (1985).
claimThe disposition effect is typically related to loss aversion, a concept defined by Kahneman and Tversky (1979).
referenceResearch in behavioral finance has identified several cognitive biases affecting financial decision-making, including overconfidence (Barber and Odean 2000, 2001; Chuang and Lee 2006; Glaser and Weber 2007; Odean 1999), loss aversion (Benartzi and Thaler 1995), the disposition effect (Boolell-Gunesh et al. 2009; Odean 1998; Shefrin and Statman 1985), home bias (Coval and Moskowitz 1999), regression to the mean (De Bondt and Thaler 1985), and herding behavior (Grinblatt et al. 1995).
referenceBoolell-Gunesh, Broihanne, and Merli (2009) examined the disposition effect, investor sophistication, and the impact of taxes on financial decision-making, noting specificities within the French market.
Biases in Behavioral Finance - World Scholars Review worldscholarsreview.org Sep 15, 2024 5 facts
claimChoe and Eom (2009) and Orange, Yoshinaga, and Eid (2021) found that more experienced and sophisticated investors are less prone to the disposition effect, though they are not entirely immune to it.
claimThe disposition effect is defined as the tendency of investors to hold onto losing investments while selling winning investments to realize gains.
claimResearch by Frazzini (2006) and Lepone and Wright (2014) indicates that the disposition effect is prevalent across several financial markets and investor types.
claimDierck et al. (2019) found that investors who frequently monitor their portfolios are less likely to exhibit the disposition effect.
claimDuxbury et al. (2015) claimed that the house money effect coexists with the disposition effect, a variant of loss aversion where investors hold onto losing stocks and sell winning ones.
Understanding Behavioral Aspects of Financial Planning and Investing financialplanningassociation.org Mar 1, 2015 2 facts
claimThe disposition effect is a bias characterized by the inclination to sell stocks that have appreciated in value (winners) too early and hold on to losing stocks (losers) for too long.
claimThe disposition effect is harmful to clients because it can increase the capital gains taxes individuals incur and reduce returns even before taxes.
Influence of behavioral biases on investment decisions. The ... revistas.usc.gal 2 facts
referenceH. Shefrin and M. Statman's 1985 paper 'The disposition to sell winners too early and ride losers too long: Theory and evidence' identifies the disposition effect in investment behavior.
referenceDuxbury et al. (2015) analyzed whether the disposition effect and the house money effect coexist using individual investor-level data.