Disposition Effect Bias in Investment and Important Factors Behind This Phenomenon

Abstract

Disposition effect bias in investment is one of the most important phenomena observed among the investors that impacts the wealth of the investors. Although several important factors are found to have contributed to this effect, studies are still ongoing to find out more factors that directly or indirectly affect this phenomenon. Prospect theory or Loss aversion seems to be the principal factor behind this effect. Other important factors consistent with

irrational behavior of investors are; cognitive dissonance, mental accounting, regret aversion and prior prices. Important rational factors are mean reversion of prices and realization utility. Further research to identify factors

affecting these important factors like demography, past experiences, gender etc. is required to delve deep into this important phenomenon in finance.