Newcastle University Business School

Event Item

The Disposition Effect in Social Trading: Influence of Transparency on Investment Decisions

Part of the Behavioural Research in Finance research group seminar series.

Date/Time: Wednesday 11 October, 14:00 - 15:30

Venue: Room 4.25, Newcastle University Business School

Speaker: Dr Arman Eshraghi, University of Edinburgh Business School

The tendency of traders to forgo loss realization in favour of gain realization, known as the disposition effect, is lower in a social trading environment. Trading data from 13,000 users of a social trading platform enables us to analyse different stages in the portfolio lifecycle. We find that trading behaviour depends on the level of transparency, with the disposition effect nearly halved in a transparent environment. As traders become aware of the possibility of being observed, they adapt their behaviour, resulting in a negative relationship between disposition effect and transparency. We further discuss the mediating impact of information illustration and saliency on reducing the disposition effect, and the impact of ‘transparency culture’ by exploring the differences in trading between users residing in the former East and West Germany.