Realization Utility

Nicholas C. Barberis and Wei Xiong

No 14440, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A number of authors have suggested that investors derive utility from realizing gains and losses on assets that they own. We present a model of this "realization utility," analyze its predictions, and show that it can shed light on a number of puzzling facts. These include the disposition effect, the poor trading performance of individual investors, the higher volume of trade in rising markets, the effect of historical highs on the propensity to sell, the individual investor preference for volatile stocks, the low average return of volatile stocks, and the heavy trading associated with highly valued assets.

JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2008-10
New Economics Papers: this item is included in nep-upt
Note: AP
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Citations: View citations in EconPapers (1)

Published as Barberis, Nicholas & Xiong, Wei, 2012. "Realization utility," Journal of Financial Economics, Elsevier, vol. 104(2), pages 251-271.

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