Individual Characteristics and the Disposition Effect: The Opposing Effects of Confidence and Self-Regard

Journal of Behavioral Finance, Forthcoming

Posted: 27 Feb 2012 Last revised: 25 Oct 2015

See all articles by Kathryn Kadous

Kathryn Kadous

Emory University - Goizueta Business School

William B. Tayler

Brigham Young University

Jane M. Thayer

Georgia Institute of Technology

Donald Young

Indiana University - Kelley School of Business

Date Written: March 16, 2012

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.

Keywords: Disposition Effect, Self-Regard, Confidence, Mean Reversion, Self-Esteem

JEL Classification: A10, G10, M40, G14

Suggested Citation

Kadous, Kathryn and Tayler, William B. and Thayer, Jane M. and Young, Donald, Individual Characteristics and the Disposition Effect: The Opposing Effects of Confidence and Self-Regard (March 16, 2012). Journal of Behavioral Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2010147 or http://dx.doi.org/10.2139/ssrn.2010147

Kathryn Kadous

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States
404-727-4967 (Phone)

William B. Tayler (Contact Author)

Brigham Young University ( email )

Brigham Young University
519 TNRB
Provo, UT 84602
United States
(801) 422-5972 (Phone)
(801) 422-0621 (Fax)

Jane M. Thayer

Georgia Institute of Technology

Atlanta, GA 30332
United States

Donald Young

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

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