Portfolio framing and diversification in a disposition effect experiment

Stephen Cheung and Nathan Rogut

Journal of Behavioral and Experimental Finance, 2024, vol. 44, issue C

Abstract: We experimentally test an intervention designed to reduce investors’ disposition effect by prompting them to identify their worst asset, from the standpoint of its impact on future portfolio performance. We find that this intervention is mildly effective, and significantly more so for participants who correctly identify their worst asset, and/or sell the asset they identify. We also find that participants who correctly understand diversification in a financial literacy questionnaire exhibit larger disposition effects in the experiment. The latter finding raises concerns over the external validity of standard experimental paradigms used to study the disposition effect.

Keywords: Behavioural finance; Portfolio choice; Disposition effect; Diversification (search for similar items in EconPapers)
JEL-codes: C91 G11 G40 G53 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Portfolio framing and diversification in a disposition effect experiment (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:44:y:2024:i:c:s2214635024001126

DOI: 10.1016/j.jbef.2024.100997

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