Investor horizon, experience, and the disposition effect

The disposition effect, characterized by the tendency to sell winning assets too soon and hold onto losing assets for too long, is a widely documented phenomenon among investors. Using granular trade-level data, we examine the disposition effect among different categories of foreign institutional investors (FIIs) in the context of an emerging market. Using survival analyses over several years, we find that short-term investors are most prone to disposition effects, while long-term investors are least prone. We also find that experience, as indicated by cumulative years in the market and the volume of stocks traded, mitigates the disposition effects, but only among long-term FIIs. While FIIs exhibit higher disposition effects during crisis periods, this effect is mitigated by experience, particularly among long-term FIIs. Our findings suggest that accounting for heterogeneity in institutional investors, rather than treating them as a whole, is important for a better understanding of financial markets.

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Publication Details

Journal
Journal of Behavioral and Experimental Finance
Published
2024-10-28
DOI
https://doi.org/10.1016/j.jbef.2024.101003
Citations
3
Primary Topic
Financial Markets and Investment Strategies
Type
article
Field-Weighted Citation Impact
1.62
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article

Investor horizon, experience, and the disposition effect

Suman Neupane, Zhebin Fan
3 citations
Journal of Behavioral and Experimental Finance
Financial Markets and Investment Strategies
1.62
article

Investor horizon, experience, and the disposition effect

Suman Neupane, Zhebin Fan
article en
3 citations

Abstract

The disposition effect, characterized by the tendency to sell winning assets too soon and hold onto losing assets for too long, is a widely documented phenomenon among investors. Using granular trade-level data, we examine the disposition effect among different categories of foreign institutional investors (FIIs) in the context of an emerging market. Using survival analyses over several years, we find that short-term investors are most prone to disposition effects, while long-term investors are least prone. We also find that experience, as indicated by cumulative years in the market and the volume of stocks traded, mitigates the disposition effects, but only among long-term FIIs. While FIIs exhibit higher disposition effects during crisis periods, this effect is mitigated by experience, particularly among long-term FIIs. Our findings suggest that accounting for heterogeneity in institutional investors, rather than treating them as a whole, is important for a better understanding of financial markets.

Journal of Behavioral and Experimental FinanceVol. 44
The University of Sydney (AU), The University of Queensland (AU)
Openalex Percentile: Top 15%
Financial Markets and Investment Strategies
1.62
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Investor horizon, experience, and the disposition effect — Suman Neupane, Zhebin Fan · Journal of Behavioral and Experimental Finance (2024) | TGRS Research Map | TGRS