This paper discusses aspects of disposition effects in several ways and perspectives. There is evidence, that investors sell winners earlier and hold losers longer. Theories from mental accounting, prospect theory, self-control, decision dependent emotions, internal locus of control, and many more relate to the disposition effect.
After discussing them shortly, we investigate experiments in the laboratory and empirical evidence to come to the conclusion, that disposition effects exist for single investors and more pronounced for team investors. Tax considerations, automatic selling and decision dependent emotions change the proportion of how much investors are prone to disposition effects. The following mindmap shows an impression of the most important connections between the different effects.
Inhaltsverzeichnis (Table of Contents)
- Outline
- 1. Introduction
- 2. Basic discussion of the disposition effect
- 2.1. The main elements of the disposition effect
- 2.2. Empirical evidence of the disposition effect
- 2.3. Interaction of the effects
- 3. Experimental analysis of the the disposition effect for single investors.
- 3.1. Theoretical background for the experiments
- 3.3. Results
- 3.4. Discussion of the results
- 4. Experimental analysis of the the disposition effect for team investors.
- 4.1. Theoretical background for the experiments
- 4.2. Conceptual Background
- 4.3. Hypotheses and Experimental Procedures
- 4.4. Inferences
- 4.5. Conclusions
- 5. Discussion
- References
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper explores various aspects and perspectives of disposition effects in the investment realm. It investigates the tendency for investors to sell winning assets prematurely and hold losing assets for extended periods. The paper delves into theories related to this behavior, including mental accounting, prospect theory, self-control, decision-dependent emotions, and internal locus of control. It analyzes experimental evidence and laboratory studies to demonstrate the existence of disposition effects for both individual and team investors. Furthermore, the paper examines factors such as tax considerations, automatic selling, and decision-dependent emotions that influence the extent to which investors exhibit disposition effects.
- The disposition effect and its impact on investment decisions
- Theoretical frameworks explaining the disposition effect, including prospect theory and mental accounting
- Experimental evidence and studies on disposition effects in individual and team investors
- Factors influencing the manifestation of disposition effects, such as tax considerations and decision-dependent emotions
- Practical implications of understanding disposition effects for investors and financial advisors
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter introduces the concept of the disposition effect and its potential impact on investors. It explores the views of bank advisors regarding the disposition effect and its influence on investment decisions.
- Basic Discussion of the Disposition Effect: This chapter delves into the core elements of the disposition effect, including a detailed exploration of prospect theory and its implications for investor behavior. It also examines empirical evidence that supports the existence of the disposition effect.
- Experimental Analysis of the Disposition Effect for Single Investors: This chapter focuses on experiments designed to investigate the disposition effect in individual investors. It outlines the theoretical background for these experiments, presents the results obtained, and discusses the findings.
- Experimental Analysis of the Disposition Effect for Team Investors: This chapter investigates the disposition effect in the context of team investment decisions. It explores the theoretical framework, conceptual background, hypotheses, and experimental procedures used in these studies. It also presents inferences and conclusions drawn from the analysis.
Schlüsselwörter (Keywords)
The primary keywords and focus topics of this paper include disposition effect, prospect theory, mental accounting, self-control, decision-dependent emotions, internal locus of control, individual investors, team investors, tax considerations, automatic selling, experimental evidence, and behavioral finance.
Frequently Asked Questions
What is the "disposition effect" in behavioral finance?
The disposition effect is the observed tendency of investors to sell assets that have increased in value ("winners") too early and hold onto assets that have decreased in value ("losers") for too long.
How does Prospect Theory explain the disposition effect?
Prospect Theory suggests that people value gains and losses differently, leading to risk-averse behavior regarding gains (selling winners) and risk-seeking behavior regarding losses (holding losers).
Does the disposition effect differ between individual and team investors?
Research indicates that the disposition effect exists for single investors but is often even more pronounced in team investment settings.
What role do emotions play in investment decisions?
Decision-dependent emotions, such as regret (from selling a loser) or pride (from selling a winner), strongly influence the likelihood of an investor falling prey to the disposition effect.
Can tax considerations mitigate the disposition effect?
Yes, tax-loss harvesting can encourage investors to sell losing positions to offset gains, potentially counteracting the natural tendency to hold onto losing investments.
- Citar trabajo
- Julian Fischer (Autor), 2017, Market Phenomena. Investors and the Disposition Effect, Múnich, GRIN Verlag, https://www.grin.com/document/352840
