Journal of Finance Vol. 64 No. 2 2009
What Drives the Disposition Effect? An Analysis of a Long‐Standing Preference‐Based Explanation
Abstract
We investigate whether prospect theory preferences can predict a disposition effect. We consider two implementations of prospect theory: in one case, preferences are defined over annual gains and losses; in the other, they are defined over realized gains and losses. Surprisingly, the annual gain/loss model often fails to predict a disposition effect. The realized gain/loss model, however, predicts a disposition effect more reliably. Utility from realized gains and losses may therefore be a useful way of thinking about certain aspects of individual investor trading.
- DOI
- 10.1111/j.1540-6261.2009.01448.x
- Volume
- 64
- Issue
- 2
- Pages
- 751-784
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref