On the neural substrates of the disposition effect and return performance

Dorow, Anderson; Costa, Newton Da; Takase, Emílio; Prates, Wlademir Ribeiro; Silva, Sergio Da

doi:10.1016/j.jbef.2017.12.003

Cited by 36 publications

(8 citation statements)

References 27 publications

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“…Here we detail Odean’s metric [11] following our own presentation published elsewhere [2]. In a given period of time, each stock is assigned to one of four categories: 1) as a gain realized, whenever a stock is sold at a price that is higher than the average purchase price; 2) as a loss realized, whenever it is sold at a price that is lower than the average purchase price; 3) as a paper gain, whenever its price is higher than its average purchase price, but the stock is not sold during that period; and 4), as a paper loss, whenever its price is lower than its average purchase price, but the stock is not sold during the period.…”

Section: Methodsmentioning

confidence: 99%

“…The disposition effect is one of the most studied behavioral biases in finance [1]. Many explanations have been proposed but none is established [2] [3]. One particular aspect of interest in our study of the phenomenon is investor experience.…”

Section: Introductionmentioning

confidence: 99%

“…One particular aspect of interest in our study of the phenomenon is investor experience. Professionals are more likely to escape the disposition effect, a result shown both behaviorally [4, 5] and with neural data [2].…”

Section: Introductionmentioning

confidence: 99%

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Propensity to sell stocks in an artificial stock market

et al. 2019

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This experimental study of an artificial stock market investigates what explains the propensity to sell stocks and thus the disposition effect. It is a framed field experiment that follows the steps of a previous observational study of investor behavior in the Finnish stock market. Our experimental approach has an edge over the observational study in that it can control extraneous variables and two or more groups can be compared. We consider in particular the groups of amateur students and professional investors because it is well established in the literature that the disposition effect is less pronounced in professionals. The disposition effect was measured by both the traditional metric and a broader one that properly considers return intervals. A full logit model with control variables was employed in the latter case. As a result, we replicate for the broader definition what already has been found for the traditional measure: that investor experience dampens the disposition effect. Trades with positive returns exhibited higher propensity to sell than trades with negative returns. For the overall sample of participants, we find the disposition effect cannot be explained by prospect theory, but we cast doubt on this stance from partitions of data from amateurs and professionals.

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Section: Methodsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Propensity to sell stocks in an artificial stock market

et al. 2019

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“…Different kinds of investors have different disposition effect. Dorow and Jr (2018) [8] tested the changes of neurological status through experiment, found that both professional investors and non-professional investors have disposition effect, but the professional investors is smaller than the non-professionals. Choe and Eom (2010) [11] get same results, by empirical analysis about Korean Futures Market.…”

Section: Introductionmentioning

confidence: 99%

The Disposition Effect and Risk Preference in Losses

Li¹,

Chen²

2019

Proceedings of the 2019 International Conference on Mathematics, Big Data Analysis and Simulation and Modelling (MBDASM 2019)

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We examine whether the risk preference in losses increase the disposition effect. We take 9526 investors' annual trading data of a large china's futures company in 2013 as an example. The results show that most of investors have disposition effect, only the professional investors have a moderate risk preference in loss do not have. Risk preference is an important factor, it increase the hold losses significantly, then the disposition effect increased. Moreover, the disposition effect has a negative impact on investment returns. the higher risk preference is, the more hold losses and cash profit is, but the return determined by hold losses.

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“…The mechanism driving the disposition effect has recently been documented through simulation and pays particular attention to the influence of different risk preferences, as suggested by prospect theory, together with a preference for immediate rewards over delayed rewards (Shoji & Kanehiro, 2016). Very recently, Dorow, Costa, Takase, Prates, and Silva (2018) have shown that there is a change in brain activity of the participant in the process of the disposition effect and return performance. Recent reports have discussed the variation of disposition effect based on market state and divided the market into "bull" or "bear" market states, arguing that the disposition effect may vary based on market state (Muhl & Talpsepp, 2018).…”

Section: Introductionmentioning

confidence: 99%

The systematic biases in decision-making in the mutual-fund markets: Market states and disposition effect

Dutta

Huang

2018

Cogent Economics & Finance

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We have investigated the influence of investors' expectation of future market trends on their trading and investment decisions in various market states. The efficiency of mutual-fund markets can be threatened by systematic biases in different decision-makings. Mutual-fund investors exhibit the disposition effect whereas neither type of investor exhibits such effect in the bear market. Stock-fund investors in the bull and neutral markets exhibit the disposition effect, whereas balanced-fund investors exhibit the disposition effect only in the neutral market. This study enables mutualfund managers to plan cash holdings in the trading of various types of mutual funds and in various market states to respond to future fund investors' fund redemption. Multiple regression analysis is conducted to verify whether stock-fund investors are prone to exhibit the disposition effect in various market states. Stock-fund investors exhibit a higher tendency toward the disposition effect than the balanced-fund investors. In addition, in the bear market the redemption rate for the stock-fund investors is higher than that for the balanced-fund investors that resulted in a high turnover rate.

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On the neural substrates of the disposition effect and return performance

Cited by 36 publications

References 27 publications

Propensity to sell stocks in an artificial stock market

Propensity to sell stocks in an artificial stock market

The Disposition Effect and Risk Preference in Losses

The systematic biases in decision-making in the mutual-fund markets: Market states and disposition effect

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