Do Behavioral Biases Affect Order Aggressiveness?

We investigate whether behavioral biases affect the order submission strategies of investors. We take advantage of a very unique database provided by the Shanghai Stock Exchange, which allows us to track order submissions and executions for every investor, and compare with their trading performance of individual stocks. Consistent with previous studies, we find that investors exhibit disposition effect whereby they are more likely to sell stocks that experience gains than losses. The disposition effect will affect the sell order submission strategies, as investors are less (more) aggressive in submitting the sell order for a stock that experiences paper losses (gains). Consistent with the house money effect, investors are more willing to assume more risk and become more patient in selling the winner stocks after the paper profits reach a certain level.