Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/229647 
Year of Publication: 
2021
Series/Report no.: 
SAFE Working Paper No. 305
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
The disposition effect is implicitly assumed to be constant over time. However, drivers of the disposition effect (preferences and beliefs) are rather countercyclical. We use individual investor trading data covering several boom and bust periods (2001-2015). We show that the disposition effect is countercyclical, i.e. is higher in bust than in boom periods. Our findings are driven by individuals being 25% more likely to realize gains in bust than in boom periods. These changes in investors' selling behavior can be linked to changes in investors' risk aversion and in their beliefs across financial market cycles.
Subjects: 
Disposition Effect
Financial Market Cycles
Household Finance
Retail Investor
JEL: 
D14
G11
G28
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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