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How Time Constraint Affects the Disposition Effect?

Xiaofei Niu () and Jianbiao Li

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: Time constraint is a central aspect of financial decision making. This paper experimentally examines the effect of time constraint on the disposition effect, which refers to the empirical fact that investors have a higher propensity to sell stocks with capital gains compared to stocks with capital losses. We distinguish time pressure from time constraint by implementing three treatments: no time constraint (NTC), 20 seconds time constraint (20TC), and 10 seconds time constraint (10TC). The experimental results show that time constraint affects the disposition effect at some conditions, i.e. the 10TC treatment, in which subjects perceive more time pressure, significantly reduces the disposition effect; this treatment effect, however, vanishes in 20TC treatment, where feelings of stress do not differ from the NTC treatment. Self-control is one of the psychological mechanisms that explains why time pressure reduces the disposition effect.

Keywords: time pressure; disposition effect (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-neu
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Handle: RePEc:zbw:esprep:194618