Speculating in gains, waiting in losses: A closer look at the disposition effect

Using the trading data from Estonian stock market as well as the laboratory experiments, we find that investment decisions depend on the current performance and the past price movement. Investors are contrarian in gains and holding stocks in losses, which is mostly consistent with our experimental results, where participants stay with their last period allocations if they had losses; whereas they follow more active contrarian strategies if they had profits. Our experiment suggests that the risk attitude in losses, together with wishful thinking and misperception of the price process, such as gambler’s fallacy, may attribute to the observed disposition effect.