Measuring the disposition effect

Rudy De Winne

No 2021002, LIDAM Reprints LFIN from Université catholique de Louvain, Louvain Finance (LFIN)

Abstract: Despite hundreds of papers confirming the existence of the disposition effect, too little attention has been devoted to the prevailing arguments on the choice of a given method to measure it. This paper fills this gap and compares different measurement approaches. First, based on empirical and simulationbased data, I show how results may differ across measures depending on market trends but, more importantly, on the frequency at which investors make their decisions. Second, the pitfalls in analyzing cross-sectional differences in the disposition effect are illustrated and discussed. Finally, I clearly show that hazard models are quite appropriate to measuring the disposition effect of any investor, be it a day trader or a typical retail investor who monitors his portfolio infrequently.

Keywords: Disposition effect; Individual investors; Behavioral finance; Financial literacy; Trading activity (search for similar items in EconPapers)
JEL-codes: G11 G40 (search for similar items in EconPapers)
Date: 2021-01-01
Note: In: Journal of Behavioral and Experimental Finance, 2021, vol. 29, 100468
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Citations: View citations in EconPapers (5)

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Journal Article: Measuring the disposition effect (2021)
Working Paper: Measuring the disposition effect (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ajf:louvlr:2021002

DOI: 10.1016/j.jbef.2021.100468

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