On this evidence, yes. The is the tendency to sell winners and hold losers. Dierick and colleagues used a brokerage dataset covering individual investors’ logins as well as their trades, which lets attention be measured rather than inferred. More attentive investors traded less in line with the disposition effect.
The pattern is more specific than just less bias. High attention is related to a stronger tendency to sell rather than large ones. Low attention increases an investor’s likelihood of selling extreme profits rather than moderate ones. The authors read both as consistent with and with saliency effects.
The disposition effect is the tendency to sell winning investments and hold losing ones, and it is among the most robust findings about how individuals trade. Why some investors show it more than others is less settled. Dierick, Heyman, Inghelbrecht and Stieperaere investigate its severity as a function of attention.
The dataset is the contribution. It is a novel brokerage dataset covering individual investors’ as well as their stock trading. Attention can therefore be measured for each person at each time, rather than inferred from whether the market was in the news.
The headline result is that more attentive investors trade less in line with the disposition effect. The authors read this as a comparative advantage in incorporating information into financial decision making: people who look more often are better at acting on what they see, rather than merely seeing more.
Two finer patterns sharpen it. High attention is related to a stronger tendency to sell moderate losses as compared to large ones, which is the uncomfortable, correct behavior the bias usually suppresses. Low attention increases an investor’s likelihood to sell extreme rather than moderate profits. Both are in line with the theory of cognitive dissonance and with saliency effects. One caution: this is observational, so attentive investors may simply be better investors, and a login records looking rather than thinking.
wat. The investors who checked more often sold their winners less eagerly.
wat wat
The study watches attention rather than assuming it. Logins record when someone actually looked, which is a far better handle on attention than most behavioral finance work can obtain.
How do we know?
A novel brokerage dataset covering individual investors’ login behavior alongside their stock trading was used to measure the severity of the disposition effect as a function of attention.
What is still unknown
Observational brokerage data, so the association could run either way. Attentive people are perhaps simply better investors. Logins also measure looking, not thinking.
Learn something?
Where to next
Why is it so hard to say what color a word is printed in?attention
Why did the people who paid full price show up to more plays?bias
What happened when the Dunning-Kruger effect was run on random data?bias