The Disposition Effect under the Reference Dependent Smooth Model of Ambiguity

Iwaki Hideki and Yoshikawa Daisuke ()
Additional contact information
Iwaki Hideki: Faculty of Business Administration, Kyoto Sangyo University, Motoyama, Kamigamo, Kita-Ku, Kyoto 603-8555, Japan
Yoshikawa Daisuke: Department of Policy Studies, Kansai University, 3-3-35 Yamate-cho, Suita 564-8680, Osaka, Japan

Asia-Pacific Journal of Risk and Insurance, 2021, vol. 15, issue 2, 107-144

Abstract: The disposition effect is a commonly observed puzzle in financial markets. Several theoretical explanations for the disposition effect have been provided; however, it remains unresolved. We attempt to explain the effect by incorporating ambiguity attitudes that vary depending on the reference point. We extend the smooth model of ambiguity by Klibanoff, P., M. Marinacci, and S. Mukerji. 2005. “A Smooth Model of Decision Making under Ambiguity.” Econometrica 73: 1849–92 to depend on the reference point. Numerical examples show that the disposition effect is more pronounced under our reference-dependent smooth model of ambiguity if the investor gets her/his utility from the realized gains and losses.

Keywords: disposition effect; prospect theory; ambiguity; smooth model of ambiguity (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/apjri-2020-0041 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
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:bpj:apjrin:v:15:y:2021:i:2:p:107-144:n:5

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/apjri/html

DOI: 10.1515/apjri-2020-0041

Access Statistics for this article

Asia-Pacific Journal of Risk and Insurance is currently edited by Michael R. Powers

More articles in Asia-Pacific Journal of Risk and Insurance from De Gruyter
Bibliographic data for series maintained by Peter Golla ().