An Experimental Analysis of the Disposition Effect

February 8, 2012
5.30 PM

• Matteo Ploner, University of Trento

Abstract:
The term disposition effect identifies a well-known asymmetry in investors' behavior: investors seem to display a greater propensity to sell a stock when its price goes up than when it goes down. We document the emergence of the disposition effect in an experimental setting in which individuals choose over a series of prospects. In our setting, the disposition effect seems to be driven by the increase in risk propensity of those who experienced a loss in a former risky event. This finding is in line with predictions made by Prospect Theory. Furthermore, we show that some individual characteristics may foster the disposition effect.