Disposition Effect and Time: Are investors increasingly reluctant to realize losses the longer they hold on to a stock?

Sammanfattning

The disposition effect is defined as the notion that investors hold on to losses for too long. In this paper I study how the disposition effect is influenced by the longer the investor holds on to a stock. Using a unique database of detailed Swedish trading records, I examine the dispersion in disposition effect across individual investors and confirm the existence of this bias in line with previous findings. My main results show that holding period exhibits a strong positive relationship with the magnitude of the disposition effect. I show that the difference in disposition effect between men and women dissipates after controlling for investor characteristics. Older investors generally display lower bias. Disposition effect is found to be attenuated by investor sophistication and experience, confirming previous findings. The results highlight the need of educating younger and less sophisticated investors of their susceptibility to this bias.