Keywords

disposition effect, self-regard, confidence, mean reversion, self-esteem

Abstract

We conduct two experiments to examine potential causes of the disposition effect. In Experiment 1, we rule out beliefs in mean reversion as a cause of the disposition effect. Although a belief in the mean reversion of stock prices should be independent of whether an investor owns or only follows the stock, we show only investors who own the stock behave as though prices will reverse. In Experiment 2, participants buy and sell securities over multiple periods. We find that self-regard and investing confidence (two types of self-esteem) have opposing influences on investors’ tendency to hold losing investments. Investors with lower self-regard hold losing investments longer than those with higher self-regard, and investors with higher confidence hold losing investments longer than those with lower confidence. We focus on investors’ tendency to hold losing stocks too long because prior research suggests the gain versus loss sides of the disposition effect are driven by different biases.

Original Publication Citation

Kadous, K., W. B. Tayler, J. Thayer, and D. Young. 2014. Individual characteristics and the disposition effect: The opposing effects of confidence and self-regard. Journal of Behavioral Finance 15(3):235-250.

Document Type

Peer-Reviewed Article

Publication Date

2014

Publisher

Journal of Behavioral Finance

Language

English

College

David O. McKay School of Education

Department

Accountancy

University Standing at Time of Publication

Full Professor

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