Stock market entry timing and retail investors' disposition effect

Abstract

This paper explores the long-lasting impact of investors' first impression of participation in the stock market and the disposition effect. Using a unique dataset of account-level transaction records from a large brokerage firm in China, we find strong evidence for the existence of a disposition effect of Chinese retail investors. Our empirical results suggest that investors exhibit a stronger disposition effect if they initially participate in the stock market in periods of lower market returns, lower investor sentiment, higher market volatility, or higher economic policy uncertainty (EPU). The evidence enhances our understanding of the role of investors' early experience in stock market decisions and the determinants of behavioural biases in investment decisions.