Financial Attitudes, Behaviours, and the Disposition Effect

Abstract

It has been widely studied that investors suffer from the tendency to realize gains too quickly, while carrying losses too long --- also known as the disposition effect. Previous research on the phenomenon finds that there is a substantial heterogeneity with regards to the magnitude of investors' disposition effects. In this regard, we conduct an experiment in order to relate the disposition effect to subjects' self-stated attitudes and behaviours. We find that US investors' attitudes and behaviours can be captured by the following four dimensions: financial planning, anxiety, interest in issues, and impulsive decision-making. Furthermore, these dimensions reveal that investors who focus more on the long-term implications of their decisions exhibit lower disposition effects on average.