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Stock market investors' use of stop losses and the disposition effect

Richards, Daniel W.; Rutterford, Janette; Kodwani, Devendra and Fenton-O'Creevy, Mark (2017). Stock market investors' use of stop losses and the disposition effect. European Journal of Finance, 23(2) pp. 130–152.

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The disposition effect is an investment bias where investors hold stocks at a loss longer than stocks at a gain. This bias is associated with poorer investment performance and exhibited to a greater extent by investors with less experience and less sophistication. A method of managing susceptibility to the bias is through use of stop losses. Using the trading records of UK stock market individual investors from 2006 to 2009, this paper shows that stop losses used as part of investment decisions are an effective tool for inoculating against the disposition effect. We also show that investors who use stop losses have less experience and that, when not using stop losses, these investors are more reluctant to realise losses than other investors.

Item Type: Journal Item
Copyright Holders: 2015 Taylor & Francis
ISSN: 1466-4364
Keywords: behavioural finance; disposition effect; stop losses; investor experience; investor sophistication
Academic Unit/School: Faculty of Business and Law (FBL)
Faculty of Business and Law (FBL) > Business > Department for Accounting and Finance
Faculty of Business and Law (FBL) > Business
Faculty of Business and Law (FBL) > Professional Services
Faculty of Business and Law (FBL) > Business > Department for People and Organisations
Research Group: Health and Wellbeing PRA (Priority Research Area)
Innovation, Knowledge & Development research centre (IKD)
Item ID: 44069
Depositing User: Mark Fenton-O'Creevy
Date Deposited: 19 Aug 2015 08:13
Last Modified: 04 Jun 2019 18:05
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