Rational disposition effects: Theory and evidence

Daniel Dorn and Günter Strobl

Journal of Banking & Finance, 2023, vol. 153, issue C

Abstract: The disposition effect is a longstanding puzzle in financial economics. This paper demonstrates that it is not intrinsically at odds with rational behavior. In a rational expectations model with asymmetrically informed investors, trading strategies as predicted by the disposition effect can arise as an optimal response to dynamic changes in the information structure. The model predicts that the disposition behavior of uninformed investors weakens after events that reduce information asymmetries. The data, trading records of 50,000 clients at a German discount brokerage firm from 1995 to 2000, are consistent with this prediction.

Keywords: Disposition effect; Behavioral finance; Time-varying information asymmetry (search for similar items in EconPapers)
JEL-codes: D82 D83 G14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:153:y:2023:i:c:s0378426623000821

DOI: 10.1016/j.jbankfin.2023.106858

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