Are investors reluctant to realize their losses?

Article Abstract:

I test the disposition effect, the tendency of investors to hold losing investments too long and sell winning investments too soon, by analyzing trading records for 10,000 accounts at a large discount brokerage house. These investors demonstrate a strong preference for realizing winners rather than losers. Their behavior does not appear to be motivated by a desire to rebalance portfolios, or to avoid the higher trading costs of low priced stocks. Nor is it justified by subsequent portfolio performance. For taxable investments, it is suboptimal and leads to lower after-tax returns. Tax-motivated selling is most evident in December. (Reprinted by permission of the publisher.)

Research, Investments, Investors

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Improved methods for tests of long-run abnormal stock returns

Article Abstract:

There are a number of problems associated with conventional methods of testing for long-run abnormal stock returns. Research in this area has evaluated an approach based on a traditional event study framework and buy-and-hold abnormal returns, along with an approach in which the empirical distribution of mean long-run abnormal stock returns is generated under the null hypothesis. Both these approaches yield well-specified test statistics in random samples. The best way to analyze long-run abnormal returns would be to use both methods.

Models, Return on investment, Rate of return

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