The Disposition Effect and Risk Preference in Losses

Abstract

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.