What Drives the Disposition Effect? An Analysis of a Long‐Standing Preference‐Based Explanation

Nicholas Barberis and Wei Xiong

Journal of Finance, 2009, vol. 64, issue 2, 751-784

Abstract: We investigate whether prospect theory preferences can predict a disposition effect. We consider two implementations of prospect theory: in one case, preferences are defined over annual gains and losses; in the other, they are defined over realized gains and losses. Surprisingly, the annual gain/loss model often fails to predict a disposition effect. The realized gain/loss model, however, predicts a disposition effect more reliably. Utility from realized gains and losses may therefore be a useful way of thinking about certain aspects of individual investor trading.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (229)

Downloads: (external link)
https://doi.org/10.1111/j.1540-6261.2009.01448.x

Related works:
Working Paper: What Drives the Disposition Effect? An Analysis of a Long-Standing Preference-Based Explanation (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:64:y:2009:i:2:p:751-784

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().