Exploring the Disposition Effect in Trading: A Qualitative Analysis of Emotional Influences

Our study employs a qualitative and inductive methodology to examine the disposition effect in trading, capturing decision nuances and emotions that are often overlooked by quantitative tools. We ran a three-day simulation with eight management students, each managing a €100,000 virtual CAC 40 portfolio. To strengthen engagement, we introduced a non-monetary incentive in addition to hourly compensation. The experiment unfolded in a mildly declining CAC 40 environment, heightening worries about portfolio losses and fostering behavioral biases. After the simulation, we conducted semi-structured interviews and performed a structured thematic analysis, which was carried out by the three authors. The central theme is investors’ emotional reactions to fluctuations, which shape the disposition effect. On losses, participants reported stress, frustration, and resignation; they often held losing positions hoping for a rebound, delayed selling, and sometimes felt “abandonment” as losses deepened. On gains, fear of reversal and general risk aversion produced hesitation and rapid profit-taking, even for small gains. Across cases, emotions repeatedly conflicted with rational plans, steering decisions toward loss aversion and premature realization of gains.