Individual Differences in the Disposition Effect

Marco Cecchini, Emanuele Bajo, Paolo Maria Russo and Maurizio Sobrero ()

Journal of Behavioral Finance, 2019, vol. 20, issue 1, 107-126

Abstract: The authors model the role of personality traits in explaining the disposition effect building on realization utility theory and Big 5 model and moving from an aggregate level to interindividual differences. The experimental analysis, combining NEO Revised Personality Inventory measures with individual financial data from a trading simulation run by 230 individuals in China and Italy, shows that the disposition effect is driven by 2 distinct psychological processes, one related to holding losers and the other to selling winners. These 2 behavioral mechanisms are uncorrelated and influenced by different personality traits. Controlling for different demographic variables, the authors show (a) a greater sensitivity of the rewarding system that motivates “extroverts” to quickly sell the stock at gain to receive a burst of utility; (b) a tendency for “conscientious” subjects to suppress impulsivity, patiently waiting for higher cumulative returns; and (c) the importance of “openness to experience” to better value information to achieve higher outcomes.

Date: 2019
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DOI: 10.1080/15427560.2018.1492579

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