Investor Characteristics and the Disposition Effect

This paper analyses the presence of the disposition effect in the Australia equity market. We examine over 10,000 individual investor accounts at a leading local retail brokerage. Robust evidences of the disposition effect are found across all investors. We further explore the contributing factors for the observed bias by separating the sample into groups with different demographic features and trading characteristics. We also develop a model to test how different factors, when existing together, contribute to disposition effect. We find that gender, age and ethnic background all influence the level of disposition effect. Certain trading characteristics, namely, trading frequency, a preference for trading round size lots, the price range of stocks traded, and the number of stocks held in the portfolio also predict the level of disposition effect for individual investors.