The Causal Effect of Stop-Loss and Take-Gain Orders on the Disposition Effect

Urs Fischbacher, Gerson Hoffmann and Simeon Schudy
Additional contact information
Gerson Hoffmann: S Broker AG &Co. KG, Wiesbaden, Germany

No 2014-10, Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz

Abstract: The disposition effect, i.e., the tendency to sell winning stocks too early and losing stocks too late is one of the most frequently observed and discussed biases of financial investors. We investigate in a laboratory experiment whether the option of automatic selling devices causally reduces investors’ disposition effect. Our investors can actively buy and sell assets, and, in the treatment group, additionally use stop-loss and take-gain options to automatically sell assets. Investors who had access to the automatic selling devices had significantly smaller disposition effects. The reduction was driven by a significant increase in realized losses. The proportion of winners realized was similar in both treatments. Additionally, our setup provides new evidence on which reference prices investors relate to when choosing limits for automatic sales.

Keywords: disposition effect; stop-loss orders; limit sales; experiment; finance (search for similar items in EconPapers)
JEL-codes: C91 G02 G11 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2014-01-31
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.uni-konstanz.de/FuF/wiwi/workingpaperse ... mann-Schudy_2014.pdf (application/pdf)

Related works:
Journal Article: The Causal Effect of Stop-Loss and Take-Gain Orders on the Disposition Effect (2017)
Working Paper: The Causal Effect of Stop-Loss and Take-Gain Orders on the Disposition Effect (2017)
Working Paper: The causal effect of stop-loss and take-gain orders on the disposition effect (2014)
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:knz:dpteco:1410

Ordering information: This working paper can be ordered from
https://www.wiwi.uni-konstanz.de/en

Access Statistics for this paper

More papers in Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz Contact information at EDIRC.
Bibliographic data for series maintained by Office Ursprung ( this e-mail address is bad, please contact ).