Abstract
The disposition effect is related to the way investors tend to treat unrealized gains and losses on financial assets. In particular, the research found that investors have the tendency to realize gains more quickly than losses. Shefrin and Statman (1985) found that people dislike losing significantly more than they enjoy winning. The disposition effect has been described as “one of the most robust facts about the trading of individual investors" because investors will hold stocks that have lost value yet sell stocks that have gained value. In 1979, Daniel Kahneman and Amos Tversky traced the cause of the disposition effect to the so-called "prospect theory". Given the significance of disposition effect and its impact on investment decisions, the present study investigates factors affecting the disposition effect in the Indian stock market. The results of the study indicate that loss aversion, regret aversion, trading volumes, automatic selling and incremental value of holding positively contribute to the disposition effect.
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