Do the disposition and house money effects coexist? A reconciliation of two behavioral biases using individual investor-level data

Duxbury, Darren; Hudson, Robert; Keasey, Kevin; Yang, Zhishu; Yao, Songyao

doi:10.1016/j.intfin.2014.11.004

Cited by 24 publications

(31 citation statements)

References 52 publications

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“…4Benartzi and Thaler (1995) use this argument to explain the equity risk premium puzzle. 5 This interpretation is in a similar light toDuxbury et al (2015)'s interpretation of the interaction between two behavioral biases, the house money effect and the disposition effect.…”

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confidence: 66%

“…1 See Barber and Odean (2013) for an excellent overview of the literature on individual investor behavior. 2 In general, the academic literature considers the disposition effect to be a behavioral mistake, because it tends to be tax inefficient (Barber and Odean, 2013), and the stocks sold at a gain by individuals, go on to outperform the losing investments they keep in their portfolio (Odean, 1998;Seru et al, 2010;Duxbury et al, 2015).…”

Section: Introductionmentioning

confidence: 99%

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Financial Attention and the Disposition Effect

et al. 2018

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Using a novel brokerage dataset covering individual investors' login and stock trading behavior, we investigate the severity of the disposition effect as a function of attention.Our results show that more attentive investors trade less in line with the disposition effect, suggesting a comparative advantage in incorporating information into financial decision making. Furthermore, we find that high attention is related to a stronger tendency to sell moderate losses, as compared to large ones, while low attention increases an investor's likelihood to sell extreme, rather than moderate, profits. These results are in line with the theory of cognitive dissonance and saliency effects.

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confidence: 66%

Section: Introductionmentioning

confidence: 99%

Financial Attention and the Disposition Effect

et al. 2018

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“…SeeBarber and Odean (2013) for an excellent overview of the literature on individual investor behavior.2 In general, the academic literature considers the disposition effect to be a behavioral mistake, because it tends to be tax inefficient(Barber and Odean, 2013), and the stocks sold at a gain by individuals, go on to outperform the losing investments they keep in their portfolio(Odean, 1998;Seru et al, 2010;Duxbury et al, 2015).…”

mentioning

confidence: 99%

Financial attention and the disposition effect

Dierick

Heyman

Inghelbrecht

et al. 2019

Journal of Economic Behavior & Organization

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Using a novel brokerage dataset covering individual investors' login and stock trading behavior, we investigate the severity of the disposition effect as a function of attention. Our results show that more attentive investors trade less in line with the disposition effect, suggesting a comparative advantage in incorporating information into financial decision making. Furthermore, we find that high attention is related to a stronger tendency to sell moderate losses, as compared to large ones, while low attention increases an investor's likelihood to sell extreme, rather than moderate, profits. These results are in line with the theory of cognitive dissonance and saliency effects.

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“…First, two traits or biases may coexist and interact in such a way that an analysis based on solely one of the factors renders the results prone to omitted variable bias. Duxbury et al (2015) provide such an example in the reins of the disposition effect and the house money effect. Second, CEO overconfidence would be an obvious candidate for inclusion into our analysis.…”

Section: Alternative Measure Of Ceo Narcissismmentioning

confidence: 99%

Corporate risk and the humpback of CEO narcissism

Aabo

Eriksen

2018

RBF

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Purpose -The purpose of this paper is to investigate the association between CEO narcissism and corporate risk taking. Design/methodology/approach -The authors provide a novel and unobtrusive measure of CEO narcissism based on LinkedIn profiling. The authors investigate the relationship between CEO narcissism and corporate risk taking (stock return volatility) for a sample of 475 US manufacturing firms in the period 2010-2014. Findings -The authors find an inverse U-shape relationship between CEO narcissism and stock return volatility. The inverse U-shape relationship (the "humpback") is caused by the paradoxical nature of the narcissistic personality in which the self-esteem is high but at the same time fragile with a combination of self-admiration and a constant need of having this positive self-view confirmed. The results are robust to alternative specifications of CEO narcissism and corporate risk taking. The results are economically meaningful. Thus, a moderate degree of CEO narcissismas compared to a very low or a very high level of CEO narcissismis associated with an increase in corporate risk taking of approximately 12 percent. Originality/value -Previous literature provides multiple analyses on the association between managerial overconfidence and corporate decisions. As opposed to overconfidence, narcissism is a personality trait having both cognitive and behavioral dimensions. This paper provides a novel contribution to the growing literature on the association between managerial biases/traits and corporate decision-making.

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Do the disposition and house money effects coexist? A reconciliation of two behavioral biases using individual investor-level data

Cited by 24 publications

References 52 publications

Financial Attention and the Disposition Effect

Financial Attention and the Disposition Effect

Financial attention and the disposition effect

Corporate risk and the humpback of CEO narcissism

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