Are Taiwanese individual investors reluctant to realize their losses?

Abstract

Taiwanese investors exhibit a stronger disposition effect than US investors. On average, the proportion for realizing gains is 2.5 times that for realizing losses. The corresponding multiple for the US investors is 1.5 [Odean, T., 1998. Are investors reluctant to realize their losses? Journal of Finance 53, 1775–1798.]. The cultural difference between the Ease and the West could partly explain this phenomenon, i.e., Taiwanese investors have stronger beliefs in mean reversion than US investors. However, investors' belief formation is not obviously reinforced by their experiences from the stock market. Analysis at the stock characteristic level finds that investors trading stocks in high-return/low-price categories and in low-return/high-price categories exhibit the reverse disposition effect. The disposition effect at the individual level shows that aged female investors are more inclined to asymmetrically deal with their gains than losses. By contrast, the investors with margin trading are less likely to exhibit the disposition effect.