An Individual Level Analysis of the Disposition Effect: Empirical and Experimental Evidence

Martin Weber and Frank Welfens ()
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Frank Welfens: Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre, Postal: L 5, 2, D-68131 Mannheim

No 07-45, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: The disposition effect describes investors’ common tendency of quitting a winning investment too soon and holding on to losing investments too long (Shefrin and Statman 1985). Our paper analyses individual level disposition effects using both account level field data as well as a controlled laboratory experiment. While we observe the disposition effect on aggregate, the extent to which a single decision maker is affected varies considerably across investors. We find overwhelming evidence for relative stability of individual disposition effects both within and across tasks, as well as across time. Learning, nevertheless, attenuates the magnitude of the effect strongly both within tasks and over time. In accordance with prior research, we also document that frequent traders sell their winners less and their losers more often, resulting in lower disposition effects.

Pages: 0 pages
Date: 2007-06-27
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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Working Paper: An individual level analysis of the disposition effect: empirical and experimental evidence (2007)
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