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Hold on to it? An Experimental Analysis of the Disposition Effect

Matteo Ploner

No 1405, CEEL Working Papers from Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia

Abstract: This paper experimentally investigates a well-known anomaly in portfolio management, i.e. the fact that paper losses are realized less than paper gains (disposition effect). The existence of the disposition effect is documented in a simple risk task which demonstrates that the anomaly is most likely due to a higher degree of risk aversion of those experiencing a loss in a prior investment relative to those experiencing a gain. However, when an �emotionally colder� choice protocol is adopted, a reverse dispo- sition effect is observed. The results of the study may help design trading rules to overcome the pitfalls of the disposition effect.

Keywords: Disposition Effect; Decision Making under Uncertainty; Behavioral Finance; Experiments; Prospect Theory (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe and nep-exp
Date: 2014
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Journal Article: Hold on to it? An experimental analysis of the disposition effect (2017) Downloads
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