Joint Evaluation and Trend Information Mitigates the Disposition Effect


Disposition effect refers to the phenomena where investors hold loser stocks and sell winner stocks. Effects of information about the trend on the disposition effect were tested in two experiments, where participants decided whether they sell or not, given information about the performances of one (separate evaluation, SE) or two stocks (joint evaluation, JE). When only the prices of the previous month and the current month were given in Experiment 1, the percentage of selling the losing stock in JE was twice larger than that in SE. The differences in selling the losing stock between SE and JE disappeared when the monthly prices of previous six months were given in Experiment 2. Results of the two experiments showed that the disposition effect got weaker when the trend of loss was apparent either by knowing the losing performance over many stocks or over many months.

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