Lookup NU author(s): Professor Darren Duxbury,
Professor Robert Hudson
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License (CC BY-NC 4.0).
This paper uses investor-level data to examine jointly the tendency of investors to succumb to the disposition effect and the house money effect; two behavioral biases premised on seemingly contradictory responses to prior gains/losses. We document three novel findings. First, the two effects can contemporaneously coexist in a single stock market and the majority of investors (53.5%) simultaneously succumb to both effects. Second, we demonstrate the importance of distinguishing prior outcomes across two dimensions; unrealized/realized and stock/portfolio level. Third, we find that the house money effect moderates the disposition effect, suggesting that cognitive biases need not always have negative consequences.
Author(s): Duxbury D, Hudson R, Keasey K, Yang Z, Yao S
Publication type: Article
Publication status: Published
Journal: Journal of International Financial Markets, Institutions and Money
Print publication date: 01/01/2015
Online publication date: 06/11/2014
Acceptance date: 03/11/2014
Date deposited: 09/12/2014
ISSN (print): 1042-4431
ISSN (electronic): 1873-0612
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