Title

Do Large Losses Loom Larger than Gains? Salience, Holding Periods, and the Disposition Effect

Authors

Vladimir Kotomin, Illinois State UniversityFollow
Abhishek Varma, Illinois State UniversityFollow

Document Type

Article

Publication Date

10-2021

Keywords

Salience; Disposition effect; Reverse disposition effect; Recency; Valuation uncertainty; Volatility; Individual Investors

Abstract

Individual investors are more likely to sell stocks with nominal gains and losses that are large relative to their brokerage portfolio value. The salience of nominal gains and losses affects stock sales in both taxable and tax-deferred accounts and across investor groups, but the effect of nominal losses is weaker for stocks with high valuation uncertainty. The effect has a time dimension: at short holding periods, individuals are more likely to sell stocks with large nominal losses than gains of the same size, mitigating the disposition effect. Investors may be compelled to revisit their beliefs after incurring large losses quickly.

Comments

This accepted version was originally published in The Financial Review 57, no. 2 (2021): 397-427, https://doi.org/10.1111/fire.12288.

Recommended Citation

Kotomin, Vladimir and Varma, Abhishek, "Do Large Losses Loom Larger than Gains? Salience, Holding Periods, and the Disposition Effect" (2021). Faculty Publications - Finance, Insurance, and Law. 17.
https://ir.library.illinoisstate.edu/fpfil/17