Investor characteristics and the disposition effect

•We examine individual investor trading in Australia.•Robust evidence of disposition effect is observed across all investors.•Trading characteristics and demographic features influence the level of disposition effect.

This paper studies the prevalence of the disposition effect in individual traders in the Australian equities market. In particular, we examine the effect of demographics and Chinese ethnicity on trading behaviour. The relationship between ethnic background and trading behaviour has not previously been studied in a multicultural market. Robust evidence of the disposition effect is found across different investor categories using a large sample of individual investor accounts at a leading local retail brokerage. However, the disposition effect is more prevalent in investors of Chinese background, as well as women and older investors. Further, other behavioural biases are found to be predictors of the disposition effect, including frequent trading, round size trading heuristics, and the investor's level of portfolio diversification.