Robert A. Haugen, Lemma W. Senbet, Bankruptcy and Agency Costs: Their Significance to the Theory of Optimal Capital Structure, The Journal of Financial and Quantitative Analysis, Vol. 23, No. 1 (Mar., 1988), pp. 27-38

This paper presents empirical evidence comparing two models of trading in equities—the well‐known tax‐loss‐selling hypothesis and “the disposition effect.” According to the disposition effect, investors are reluctant to realize losses but are eager to realize gains. This paper distinguishes between the two models with a new methodology that examines the relationship between volume at a given point in time and volume that took place in the past at different stock prices. The evidence overwhelmingly supports the disposition effect not only as a determinant of year‐end volume, but also as a determinant of volume levels throughout the year.