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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

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Institution:
University of Oxford
Department:
Oxford, MPLS, Oxford-Man
Role:
Author
Journal:
MANAGEMENT SCIENCE
Volume:
58
Issue:
2
Pages:
445-460
Publication date:
2012-02-05
DOI:
EISSN:
1526-5501
ISSN:
0025-1909
URN:
uuid:25a9699a-36ed-4b99-8f55-e23a62a6a6d7
Source identifiers:
325015
Local pid:
pubs:325015

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