Open AccessPropensity to sell stocks in an artificial stock market
Author(s) -
Wlademir Ribeiro Prates,
Newton Da Costa,
Manuel José da Rocha Armada,
Sérgio Da Silva
Publication year - 2019
Publication title -
plos one
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.99
H-Index - 332
ISSN - 1932-6203
DOI - 10.1371/journal.pone.0215685
Subject(s) - observational study , disposition , disposition effect , stock (firearms) , logit , stock market , econometrics , propensity score matching , amateur , economics , actuarial science , business , psychology , statistics , social psychology , mathematics , biology , engineering , mechanical engineering , paleontology , context (archaeology) , horse , political science , law
This experimental study of an artificial stock market investigates what explains the propensity to sell stocks and thus the disposition effect. It is a framed field experiment that follows the steps of a previous observational study of investor behavior in the Finnish stock market. Our experimental approach has an edge over the observational study in that it can control extraneous variables and two or more groups can be compared. We consider in particular the groups of amateur students and professional investors because it is well established in the literature that the disposition effect is less pronounced in professionals. The disposition effect was measured by both the traditional metric and a broader one that properly considers return intervals. A full logit model with control variables was employed in the latter case. As a result, we replicate for the broader definition what already has been found for the traditional measure: that investor experience dampens the disposition effect. Trades with positive returns exhibited higher propensity to sell than trades with negative returns. For the overall sample of participants, we find the disposition effect cannot be explained by prospect theory, but we cast doubt on this stance from partitions of data from amateurs and professionals.