Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - A detailed investigation of the disposition effect and individual trading behavior
T2 - a panel survival approach
AU - Nolte, Ingmar
PY - 2012
Y1 - 2012
N2 - This article uses a panel survival approach to analyze the trading behavior of foreign exchange traders. We concentrate on a detailed characterization of the shape of the disposition effect over the entire profit and loss regions. In doing so, we investigate the influence of a number of trading characteristics on the impact of the disposition effect. These trading characteristics include: special limit order strategies, trading success, size and the experience of our investors. Our main findings are that (i) the disposition effect has a nonlinear shape. For small profits and losses we find an inverted disposition effect, while for larger ones, the usual positive disposition effect emerges. (ii) The inverted disposition effect is driven to a great extend by patient and cautious investors closing their positions with special limit orders (take-profit and stop-loss). The normal positive disposition effect is found to be intensified for impatient investors closing their positions actively with market orders. (iii) We show that unsuccessful investors reveal a stronger inverse disposition effect. (iv) Evidence that bigger investors are less prone to the disposition effect than smaller investors is also found.
AB - This article uses a panel survival approach to analyze the trading behavior of foreign exchange traders. We concentrate on a detailed characterization of the shape of the disposition effect over the entire profit and loss regions. In doing so, we investigate the influence of a number of trading characteristics on the impact of the disposition effect. These trading characteristics include: special limit order strategies, trading success, size and the experience of our investors. Our main findings are that (i) the disposition effect has a nonlinear shape. For small profits and losses we find an inverted disposition effect, while for larger ones, the usual positive disposition effect emerges. (ii) The inverted disposition effect is driven to a great extend by patient and cautious investors closing their positions with special limit orders (take-profit and stop-loss). The normal positive disposition effect is found to be intensified for impatient investors closing their positions actively with market orders. (iii) We show that unsuccessful investors reveal a stronger inverse disposition effect. (iv) Evidence that bigger investors are less prone to the disposition effect than smaller investors is also found.
KW - panel survival models
KW - trading activity dataset
KW - foreign exchange market
KW - behavioral finance
KW - disposition effect
U2 - 10.1080/1351847X.2011.601635
DO - 10.1080/1351847X.2011.601635
M3 - Journal article
VL - 18
SP - 885
EP - 919
JO - European Journal of Finance
JF - European Journal of Finance
SN - 1351-847X
IS - 10
ER -