Open AccessAn Experimental Economic Study of Loss Aversion in Stock Trading Decisions
Author(s) -
Thanchanok Aramrueng,
Peera Tangtammaruk
Publication year - 2021
Publication title -
humanities and social sciences letters
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.14
H-Index - 3
eISSN - 2312-5659
pISSN - 2312-4318
DOI - 10.18488/journal.73.2021.94.417.429
Subject(s) - disposition effect , disposition , loss aversion , economics , affect (linguistics) , stock (firearms) , behavioral economics , prospect theory , stock market , econometrics , psychology , microeconomics , social psychology , mechanical engineering , paleontology , context (archaeology) , communication , horse , engineering , biology
The disposition effect is a form of behavioral bias that tends to result in investors holding on to their losing stocks for too long and selling winning stocks too soon. It can be explained by the behavioral economics theory of loss aversion. Even though many have studied this kind of behavioral bias in a variety of different countries, none of them have investigated the disposition effect in the case of Thailand. Therefore, the main objective of our study is to test the disposition effect among Thais by applying the experimental economic approaches of Weber & Camerer (1998) and Odean (1998) whilst also including the findings from questionnaires and interviews. We set up a simulation stock trading market to test the disposition effect of participants regardless of whether they had stock trading experienced or not. Subjects were required to trade among six stocks in 14 trading periods. We also added three more periods to test how different types of news impacted the subjects’ trading decisions. In addition, we analyzed socioeconomic factors that affect disposition effect behavior by using an econometric binary choice model. We found that this experiment can exhibit the disposition effect of subjects in terms of overall and individual measurement. In normal stock trading situations, we found that over 70% of subjects showed clear signs of the disposition effect, which seemed to decrease after they received fictional news.