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Prospect Theory, Liquidation, and the Disposition Effect

Abstract:

There is a well-known intuition linking prospect theory with the disposition effect, the tendency of investors to sell assets that have risen in value rather than fallen. Recently, several authors have studied rigorous models in an attempt to formalize the intuition. However, some have found it difficult to predict a disposition effect while others produce a more extreme prediction where investors never voluntarily sell at a loss. We solve a model of asset liquidation where investors realize ...

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Publication status:
Published

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Publisher copy:
10.1287/mnsc.1110.1468

Authors


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Institution:
University of Oxford
Division:
SSD
Department:
Divisional Administration
Sub department:
Oxford-Man Institute
Role:
Author
Journal:
MANAGEMENT SCIENCE
Volume:
58
Issue:
2
Pages:
445-460
Publication date:
2012-02-01
DOI:
EISSN:
1526-5501
ISSN:
0025-1909
Source identifiers:
325015
Language:
English
Keywords:
Pubs id:
pubs:325015
UUID:
uuid:25a9699a-36ed-4b99-8f55-e23a62a6a6d7
Local pid:
pubs:325015
Deposit date:
2012-12-19

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