At the Top of the Mind: Peak Prices and the Disposition Effect

Edika Quispe-Torreblanca, David Hume (), John Gathergood, George Loewenstein and Neil Stewart ()
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David Hume: University of Warwick
Neil Stewart: University of Warwick

No 2023-09, Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham

Abstract: The disposition effect is the reluctance to sell assets at a loss relative to a salient point of reference, typically assumed to be the purchase price. Using data on stocks and housing sales, we show that the peak price achieved by an asset during the investor’s period of holding constitutes an additional salient reference point for asset owners that overlaps, and interacts, with the purchase price reference point. Peaks occurring before the investor purchased the asset do not affect future sales, indicating that ownership affects how investors form reference points.

Keywords: reference points; disposition effect; selling homes; investor behaviour (search for similar items in EconPapers)
Date: 2023-09
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