Up close and personal: Investor sophistication and the disposition effect

Management Science

Volumn 52, Issue 5, 2006, Pages 726-740

  Dhar, Ravi ^a   Zhu, Ning ^b  

^a YALE SCHOOL OF MANAGEMENT   (United States)

^b UNIVERSITY OF CALIFORNIA   (United States)

Author keywords

Disposition effect; Individual decision making; Investor sophistication

Indexed keywords

DISPOSITION EFFECT; INDIVIDUAL DECISION MAKING; INVESTOR SOPHISTICATION;

DECISION MAKING; ECONOMIC AND SOCIAL EFFECTS; INVESTMENTS; MARKETING; PROFESSIONAL ASPECTS;

INVENTORY CONTROL;

EID: 33646357502     PISSN: 00251909     EISSN: 15265501     Source Type: Journal    
DOI: 10.1287/mnsc.1040.0473     Document Type: Article

References (53)

1. Alexander, Gordon, Jonathan Jones, Peter Nigro. 1998. Mutual fund shareholders: Characteristics, shareholder demographics, and sources of information. Financial Services Rev. (7) 301-316.
2. Ang, Andrew, Angela Bannaloni. 2005. Do demographic changes affect risk premium. J. Bus, 78(1) 341-380.
3. Bailey, Thomas, Peter Berg, Carola Sandy. 2001. The effect of high-performance work practices on employee earnings in the steel, apparel, and medical electronics and imaging industries. Indust. Labor Relations Rev. 54-2A 525-543.
4. Barber, Brad, Terrancc Odean. 2000. Trading is hazardous to your wealth: The common stock investment performance of individual investors. J. Finance (April) 773-806.
5. Barber, Brad, Terrance Odean. 2001. Boys will be boys: Gender, overconfidence, and common stock investment. Quart, J. Econom. 116(1) 261-292.
6. Barber, Brad, Terrancc Odean, Ning Zhu. 2003. Systematic noise. Working paper, University of California, Davis, CA.
7. Barberis, Nicholas, Andrei Shleifer. 2003. Style investing. J. Financial Econom. 68(2) 161-199.
8. Benartzi, Shlomo, Richard Thaler. 1999. Risk aversion or myopia? Choices in repeated gambles and retirement investments. Management Sci. 45 364-381.
9. Bureau of Labor Statistics. 2000. Occupational Outlook Handbook, 2000-2001 Edition. JIST Works, Washington, D.C.
10. Camerer, Colin, R. M. Hogarth. 1999. The effects of financial incentives in experiments: A review and capital-labor-production framework. J. Risk Uncertainty 19(1-3) 7-42.
11. Chevalier, Judith, Glenn Ellison. 1999. Are some mutual fund managers better than others? Cross-sectional patterns in behavior and performance. J. Finance 54 875-899.
12. Constantinides, George. 1984. Optimal stock trading with personal taxes: Implications for prices and the abnormal January returns. J. Financial Econom. 13 65-69.
13. Coupey, Eloise, Julie Irwin, John Payne. 1998. Product category familiarity and preference construction. J. Consumer Res. 24(4) 459-468.
14. Coursey, Don L., L. Hovis, William D. Schulze. 1987. The disparity between willingness to accept and willingness to pay measures of value. Quart. J. Econom. CII 679-690.
15. Daniel, Kent, D. Hirshleifer, A. Subrahmanyam. 1998. Investor psychology and security market under- and overreactions. J. Finance 53 1839-1885.
16. Dhar, Ravi, Alok Kumar. 2002. A non-random walk down the main street: Impact of price trends on trading behavior of individual investors. Working paper, International Center for Finance, Yale University, New Haven, CT.
17. Goetzmann, William, Alok Kumar. 2003. Why do individual investors hold under-diversified portfolios? Working paper, Yale School of Management, Yale University, New Haven, CT.
18. Goetzmann, William, M. Massa. 2002. Daily momentum and contrarian behavior of index fund investors. J. Finance Quant. Anal. 37 375-390.
19. Golec, Joseph H. 1996. The effects of mutual fund managers' characteristics on their portfolio performance, risk and fees. Financial Service Rev. 5 133-148.
20. Gomes, Francisco. 2002. Portfolio choice and trading volume with loss-averse investors. Working paper, London Business School, London, UK.
21. Goyal, Amit. 2001, Demographics, stock market flows, and stock returns. Working paper, University of California, Los Angeles, CA.
22. Grinblatt, Mark, M. Keloharju, 2001a, Distance, language and culture bias: The role of investor sophistication. J. Finance 56(3) 1053-1073.
23. Grinblatt, Mark, M. Keloharju. 2001b. What makes investors trade. J. Finance 56(2) 598-616.
24. Heath, Chip, Steven Huddart, Mark Lang. 1998. Psychological factors and stock option exercise. Quart. J. Econom. 114(2) 601-628.
25. Heath, Chip, Richard Larrick, George Wu. 1999. Goals as reference points. Cognitive Psych. 38 79-109.
26. Hong, Harrison, Jeremy Stein. 1999. A unified theory of underreaction, momentum trading and overreaction in asset markets. J. Finance 54(6) 2143-2184.
27. Ingersoll, Jonathan E. 1987. Theory of Financial Decision Making. Rowman & Littlefield Publishing, Inc., Blue Ridge Summit, PA.
28. Kahneman, Daniel. 1992. Reference points, anchors, norms, and mixed feelings. Organ. Behavior Human Decision Processes 51 296-312.
29. Kahneman, Daniel, Shane Frederick. 2001. Representativeness revisited: Attribute substitution in intuitive judgments. Working paper, Princeton University, Princeton, NJ.
30. Kahneman, Daniel, M. Riepe. 1998. The psychology of the nonprofessional investors. J. Portfolio Management 24 52-65.
31. Kahneman, Daniel, Amos Tversky. 1979. Prospect theory: An analysis of decision under risk. Econometrica 47(2) 263-291.
32. Knetsch, J. L., J. A. Sniden. 1984. Willingness to pay and compensation demanded: Experimental evidence of an unexpected disparity in measures of value. Quart. J. Econom. 99(August) 507-521.
33. Knez, Peter, Vernon L. Smith, Arlington W. Williams. 1985. Individual rationality, market rationality, and value estimation. Amer. Econom. Rev. 75(2) 397-402.
34. Krueger, Alan, Cecilia Rouse. 1998. The effect of workplace education on earnings, turnover, and job performance. J. Labor Econom. 16(1) 61-94.
35. List, John A. 2003. Does market experience eliminate market anomalies? Quart, J. Econom. 118(1) 41-71.
36. List, John A. 2004. Neoclassical theory versus prospect theory: Evidence from the marketplace. Econometrica 72(2) 615-625.
37. Mullainathan, Sendhil, Richard H. Thaler. 2002. Behavioral economics. Working paper no. W7948, NBER, Cambridge, MA.
38. NASD Investor Literacy Survey. 2003. National Association of Securities Dealership. Retrieved December 2003, http://www.nasd. com/Investor/pdf-text/ surveyexecsum.pdf.
39. Nicolosi, Gina, Liang Peng, Ning Zhu. 2004. Do individuals learn from their trading experience? Working paper, University of California, Davis, Davis, CA.
40. Novemsky, Nathan, Daniel Kahneman. 2005. The boundaries of loss aversion. J. Marketing Res. 42 119-128.
41. Odean, Terrance. 1998. Are investors reluctant to realize their losses. J. Finance 53(5) 1775-1798.
42. Odean, Terrance. 1999. Do investors trade too much? Amer. Econom. Ref. 89(5) 1279-1298.
43. Ofek, Eli, Matthew Richardson. 2003. Dotcom mania: The rise and fall of internet stock prices. J. Finance. 58 1113-1138.
44. Payne, J. W., D. J. Laughhunn, R. Crum. 1984. Multi-attribute risky choice behavior: The editing of complex prospects. Management Sei. 30 1350-1361.
45. Schlarbaum, Gary, Wilber Lewellen, Ronald Lease. 1978. Realized returns on common stock investments: The experience of individual investors. J. Bus. 51 299-325.
46. Shapira, Zur, Itzhak Venezia. 2001. Patterns of behavior of professionally managed and independent investors. J. Banking Finance 25(8) 1573-1587.
47. Shefrin, Hersh, Meir Statman. 1985. The disposition to sell winners too early and ride losers too long: Theory and evidence. J. Finance 40 777-790.
48. Shogren, Jason F., Seung Y. Shin, Dermot J. Hayes, James B. Kliebenstein. 1994. Resolving differences in willingness to pay and willingness to accept. Amer. Econom, Rev. LXXXIV 255-270.
49. Tversky, Amos, Daniel Kahneman. 1991. Loss aversion in riskless choice: A reference-dependent model. Quart. J. Econom. CVI 1039-1061.
50. U.S. Bureau of the Census. 2000. Census of Population and Housing. Washington, D.C.
51. Weber, Martin, Colin Camerer. 1998. The disposition effect in securities trading: An experimental analysis. J. Econom. Behavior Organ, 33 167-184.
52. Wegener, Duane, R. Petty. 1995. Flexible correction processes in social judgment, J. Personality Social Psych. 68(1) 36-52.
53. Zhu, Ning. 2003. The local bias of individual investors. Workingpaper, International Center for Finance, Yale University, New Haven, CT.