The causal effect of stop-loss and take-gain orders on the disposition effect

Urs Fischbacher, Gerson Hoffmann and Simeon Schudy

No 89, TWI Research Paper Series from Thurgauer Wirtschaftsinstitut, Universität 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)
Date: 2014
New Economics Papers: this item is included in nep-exp
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Citations: View citations in EconPapers (7)

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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)
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Persistent link: https://EconPapers.repec.org/RePEc:twi:respas:0089

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