Do Professional Traders Exhibit Loss Realization Aversion?

In: Psychology

Submitted By xtrader38
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Do Professional Traders Exhibit Loss Realization Aversion?

Peter R. Locke * The George Washington University

Steven C. Mann ** Texas Christian University

November 2000

* Finance Department, School of Business and Public Management, The George Washington University, Washington DC, 20052. plocke@gwu.edu, (202) 994-3669.

** M.J. Neeley School of Business, Texas Christian University. Fort Worth, Texas 76129 S.mann@tcu.edu ; (817) 257-7569.
We wish to thank Peter Alonzi, Chris Barry, Rob Battalio, Gerald P. Dwyer, Avner Kalay, Paul Laux, Paula Tkac, Steve Manaster, Arthur Warga, and seminar participants at the 1998 FMA meetings, the 1999 Chicago Board of Trade Spring Research seminar, the 1999 Western Finance meetings, the 1999 Southern Finance meetings, the Commodity Futures Trading Commission, TCU, University of Texas at Dallas, and the First Annual Texas Finance Festival for discussions and comments helpful to the evolution of the paper. Pattarake Sarajoti provided valuable assistance. Mann acknowledges the support of the Charles Tandy American Enterprise Center. A good portion of this work was completed while Locke was on the staff of the U.S. Commodity Futures Trading Commission. However, the views expressed are the authors’ only and do not purport to represent the views of the Commodity Futures Trading Commission or its staff.

Do Professional Traders Exhibit Loss Realization Aversion?

Abstract Recent evidence (e.g. Odean, 1998a) describes investor behavior that is at odds with traditional economic theory. These alternative behaviors, such as those consistent with the disposition effect or overconfidence, form the basis for recent "behavioral" explanations for asset returns (e.g. Daniel, Hirshleifer and Subrahmanyam 1998a and 1998b, Odean 1998b, and Shumway, 1998). Notably, the evidence of alternative investor behavior is based largely on…...

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