Measuring the disposition effect
(2020) , 44 pages
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- Authors
- Abstract
- Despite hundreds of papers confirming the existence of the disposition effect, too little attention has been devoted to the prevailing arguments on the choice of a given method to measure it. This paper falls this gap and compares different measurement approaches. First, based on empirical and simulation-based data, I show how results may differ across measures depending on market trends but, more importantly, on the frequency at which investors make their decisions. Second, the pitfalls in analyzing cross-sectional differences in the disposition effect are illustrated and discussed. Finally, I clearly show that hazard models are quite appropriate to measuring the disposition effect of any investor, be it a day trader or a typical retail investor who monitors his portfolio infrequently.
- Affiliations
Citations
De Winne, R. (2020). Measuring the disposition effect (LFIN Working Paper 2020/01). https://hdl.handle.net/2078.5/122253