The disposition effect, performance, stop loss orders and education

Abstract

The paper studies how simulated stop loss orders affect the disposition effect and performance by running simulations using a complete transaction dataset from Nasdaq Tallinn which includes all investors in the market. We combine transaction data with detailed educational registry data about individual investors. We show that stop loss orders reduce the disposition effect but only to a certain extent, and they can be harmful to performance at the same time. We study how educational factors moderate the association of performance and the disposition effect, with mixed results.