Past Return vs Past Prices Combined with the 52-Week High Price and Return on the Disposition Effect

Thumbnail Image
Issue Date
Journal Title
Journal ISSN
Volume Title
Financial investors make different decisions based on how information is presented and experience different decision-making biases. This paper analyses the effect of seeing past returns vs past prices with and without an anchor value on the disposition effect. Through a 2x2 experiment, where participants were told they had invested in two stocks. The investors were shown either: 1) past returns without anchor, 2) past return with anchor value (52-week high price), 3) past prices without anchor, and 4) past prices with anchor value (52-week high return). This study concludes that seeing past returns without anchor instead of past prices decreases the likelihood of experiencing the disposition effect by four times. However, in the presence of the anchor, the opposite effect is found. The anchor value increases the likelihood of the disposition effect by over six times comparing both past returns groups. The opposite holds for the past prices groups. In the second experiment, individuals are faced with higher purchasing prices. Past returns are three times less likely to experience the disposition effect without the anchor present. No evidence of a difference in likelihood was found between the two anchor groups, not between both the past returns and past prices groups.
Faculteit der Managementwetenschappen