Disposition Effect and its outcome on endogenous price fluctuations

Alessia Cafferata and Fabio Tramontana

MPRA Paper from University Library of Munich, Germany

Abstract: We develop a financial market model where a group of traders is af- fected by Disposition Effect, namely they are reluctant to realize losses. In particular, we present a set of stylized facts of financial markets (fat tails, volatility clustering, etc...) that can also be caused by the DE when the trading behaviour of agents are consistent with the findings of Ben-David and Hirshleifer (2012). In order to do that, we show that the version of the model where a class of agents is endowed with a high degree of Dispo- sition Effect, permits to obtain simulated time series whose features are closer to those of real financial market with respect to the version of the model where traders are not affected by it. This happens both for the deterministic version and the stochastic one.

Keywords: Disposition Effect; Behavioural finance; Heterogeneous agents; Financial Markets. (search for similar items in EconPapers)
JEL-codes: C62 D84 G12 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-hme
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