Prospect theory (PT) has long been linked with the disposition effect. Despite significant progress towards rigorously modeling the trading behavior of PT investors, the literature has been largely silent on the effect of probability weighting. In this paper we incorporate probability weighting...

We propose an extension to the concept of the disposition effect by allowing the use of alternative reference points. While the traditional definition is based on classifying stocks as winners and losers solely based on the purchase price, we incorporate stock prices closer to sell date into the...

We estimate the disposition effect for active traders in a large discount brokerage dataset containing US households’ trading records between 1991 and 1996. We apply a wide framing perspective, focusing on portfolios rather than individual stocks. We find that the disposition effect varies...