The disposition effect does not survive disclosure of expected price trends

Olivier Corneille, Rudy De Winne and D’Hondt, Catherine

Journal of Behavioral and Experimental Finance, 2018, vol. 20, issue C, 80-91

Abstract: The disposition effect (DE) consists in investors’ preference for realizing gains over losses. One DE account suggests that this bias stems from a belief in mean-reverting prices. This account, however, was ruled out by Weber and Camerer (1998), who reported a DE when participants were presumably made aware of expected price trends. In two experiments, we revisited this widely cited study (i) by fully disclosing clear and complete information about asset price distributions, and (ii) by assessing the DE on more reliable measures. In Experiment 1, under conditions of full disclosure, a DE was replicated on Weber and Camerer (1998)’s measures but was not found on the more reliable measures. Experiment 2, which was high-powered and offered higher incentives, confirmed these findings. We conclude that the belief in mean-reverting prices cannot be ruled out as a contributing factor to DE. As additional insights, both experiments reveal that participants showed little convergence to optimal portfolio and diversified their portfolios even when diversification was sparsely effective.

Keywords: Disposition effect; Experimentation; Diversification heuristic (search for similar items in EconPapers)
JEL-codes: G11 G4 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2214635018301795

Related works:
Working Paper: The Disposition Effect does not survive disclosure of expected price trends (2018)
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:eee:beexfi:v:20:y:2018:i:c:p:80-91

DOI: 10.1016/j.jbef.2018.08.003

Access Statistics for this article

Journal of Behavioral and Experimental Finance is currently edited by Michael Dowling and Jürgen Huber

More articles in Journal of Behavioral and Experimental Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().