The Disposition Effect and Individual Investor Decisions: The Roles of Regret and Counterfactual Alternatives

Fogel, Suzanne O’Curry; Berry, Thomas

doi:10.4337/9781849809108.00012

Cited by 5 publications

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“…Shefrin and Statman (1985) proposed regret and pride as being an explanation for the disposition effect and hypothesised that pride associated with realising a gain, coupled with regret from making a losing investment, could contribute to the disposition effect. O’Curry Fogel and Berry (2006) conclude that the regret of losing on an investment outweighs the regret of a lost gain. This prompts an investor to prefer to sell a profit-making investment and forego future gains were the share price to increase, thus contributing to the manifestation of the disposition effect.…”

Section: Literature Reviewmentioning

confidence: 99%

The Extent to Which Professional Advice Can Reduce the Disposition Effect: An Emerging Market Study

Bashall

Willows

West

2018

Journal of Emerging Market Finance

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This study tests for the disposition effect in South Africa across two classes of non-professional investors: those acting in their own capacity and those acting with the assistance of professional investment advisors. The trade history of 4,840 investor accounts from a South African stockbroker was analysed over the 5-year period from October 2008 to October 2013. The results showed that individual investors in South Africa exhibit the disposition effect. However, investors acting with the assistance of professional advisors show the effect to a lesser extent which was found to be rationally justifiable on the grounds of portfolio rebalancing. JEL Classification: G11, G14, G40, G41

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Section: Literature Reviewmentioning

confidence: 99%

The Extent to Which Professional Advice Can Reduce the Disposition Effect: An Emerging Market Study

Bashall

Willows

West

2018

Journal of Emerging Market Finance

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Behavioural Biases in Investor Decisions

Coleman

2016

Applied Investment Theory

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Make Hay While the Sun Shines: an Empirical Study of Maximum Price, Regret, and Trading Decisions

Brettschneider,

Burro,

Henderson

2024

Journal of the European Economic Association

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Time-constant trading thresholds are optimal for a large class of preferences and asset price dynamics, including Expected Utility and the S-shaped reference-dependent utility of Prospect Theory. Such thresholds imply selling stocks at the maximum price since purchase. We use a large discount brokerage dataset containing US households’ trading records between 1991 and 1996 to document that in 31.6% of cases the stocks sold for a gain are sold on the day when the maximum since purchase occurs. However, not all stocks are sold at a maximum since purchase and the propensity to sell changes depending on how far in time and price the stock is with respect to this past maximum. We find that the propensity to sell initially increases as the price is closer to the past maximum but it then decreases when the price gets in the closest region to the past maximum, leading to an inverse U-shape; and that investors are less likely to sell a gain, the further away in time the maximum price occurred. Studying the joint effect of price and time distance, we find that the propensity to sell is highest at low time distance and high price distance from the maximum since purchase. We relate these findings to regret, belief updating, and attention.

show abstract

The Disposition Effect and Individual Investor Decisions: The Roles of Regret and Counterfactual Alternatives

Cited by 5 publications

References 0 publications

The Extent to Which Professional Advice Can Reduce the Disposition Effect: An Emerging Market Study

The Extent to Which Professional Advice Can Reduce the Disposition Effect: An Emerging Market Study

Behavioural Biases in Investor Decisions

Make Hay While the Sun Shines: an Empirical Study of Maximum Price, Regret, and Trading Decisions

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