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Are investors reluctant to realize their losses (1998)
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| Venue: | Journal of Finance |
| Citations: | 657 - 14 self |
BibTeX
@ARTICLE{Odean98areinvestors,
author = {Terrance Odean},
title = {Are investors reluctant to realize their losses},
journal = {Journal of Finance},
year = {1998}
}
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Abstract
I test the disposition effect, the tendency of investors to hold losing investments too long and sell winning investments too soon, by analyzing trading records for 10,000 accounts at a large discount brokerage house. These investors demonstrate a strong preference for realizing winners rather than losers. Their behavior does not appear to be motivated by a desire to rebalance portfolios, or to avoid the higher trading costs of low priced stocks. Nor is it justified by subsequent portfolio performance. For taxable investments, it is suboptimal and leads to lower after-tax returns. Tax-motivated selling is most evident in December. THE TENDENCY TO HOLD LOSERS too long and sell winners too soon has been labeled the disposition effect by Shefrin and Statman ~1985!. For taxable investments the disposition effect predicts that people will behave quite differently than they would if they paid attention to tax consequences. To test the disposition effect, I obtained the trading records from 1987 through 1993 for 10,000 accounts at a large discount brokerage house. An analysis of these
