D90 General
Refine
Document Type
- Working Paper (2)
Language
- English (2)
Has Fulltext
- yes (2)
Is part of the Bibliography
- no (2)
Keywords
- Disposition Effect (1)
- Higher Moments of Return (1)
- Realization Utility (1)
- Retail Investor (1)
- Selling Behavior (1)
- Speculation (1)
- belief formation (1)
- discrimination (1)
- motivated reasoning (1)
Using German and US brokerage data we find that investors are more likely to sell speculative stocks trading at a gain. Investors’ gain realizations are monotonically increasing in a stock’s speculativeness. This translates into a high disposition effect for speculative and a much lower disposition effect for non-speculative stocks. Our findings hold across asset classes (stocks, passive, and active funds) and explain cross-sectional differences in investor selling behavior which previous literature attributed primarily to investor demographics. Our results are robust to rank or attention effects and can be linked to realization utility and rolling mental account.
Identifying the cause of discrimination is crucial to design effective policies and to understand discrimination dynamics. Building on traditional models, this paper introduces a new explanation for discrimination: discrimination based on motivated reasoning. By systematically acquiring and processing information, individuals form motivated beliefs and consequentially discriminate based on these beliefs. Through a series of experiments, I show the existence of discrimination based on motivated reasoning and demonstrate important differences to statistical discrimination and taste-based discrimination. Finally, I demonstrate how this form of discrimination can be alleviated by limiting individuals’ scope to interpret information.