Propensity to sell stocks in an artificial stock market

• Published in: PloS one Vol. 14; no. 4; pp. e0215685[1] - e0215685[12]
• Main Authors: Prates, Wlademir, Costa Jr, Newton da, Armada, Manuel José da Rocha, Silva, Sergio da
• Format: Journal Article
• Language: English
• Published: United States Public Library of Science (PLOS) 25-04-2019; Public Library of Science; Public Library of Science (PLoS)
• Subjects: Analysis; Behavior; Beliefs, opinions and attitudes; Experiments; Financial markets; Humans; Investments; Investments - economics; Investors; Logistic Models; Logit models; Markets; Models, Economic; Observational studies; Professionals; Propensity Score; Psychological aspects; Science & Technology; Stock exchanges; Stock markets; Stock offerings; Stocks; Students; User interface; Variables; Finland; Brazil
• ISSN: 1932-6203; 1932-6203
• DOI: 10.1371/journal.pone.0215685

This experimental study of an artificial stock market investigates what explains the propensity to sell stocks and thus the disposition effect. It is a framed field experiment that follows the steps of a previous observational study of investor behavior in the Finnish stock market. Our experimental approach has an edge over the observational study in that it can control extraneous variables and two or more groups can be compared. We consider in particular the groups of amateur students and professional investors because it is well established in the literature that the disposition effect is less pronounced in professionals. The disposition effect was measured by both the traditional metric and a broader one that properly considers return intervals. A full logit model with control variables was employed in the latter case. As a result, we replicate for the broader definition what already has been found for the traditional measure: that investor experience dampens the disposition effect. Trades with positive returns exhibited higher propensity to sell than trades with negative returns. For the overall sample of participants, we find the disposition effect cannot be explained by prospect theory, but we cast doubt on this stance from partitions of data from amateurs and professionals.
This work was supported by Conselho Nacional de Desenvolvimento Científico e Tecnológico 306331/2014-4 to Professor Newton da Costa Jr.; and Coordenação de Aperfeiçoamento de Pessoal de Nível Superior to Dr Wlademir Prates.