Payment Methods and the Disposition Effect: Evidences from Indonesian Mutual Fund Trading

Abstract

The entire research on alternative payment methods focuses on buyers of goods and services, however there are no similar studies on financial investors. Using a unique dataset, we explore the effects of different transaction mechanisms amongst mutual fund traders in the emerging economy of Indonesia. Our results show that, as with common buyers, alternative payment methods influence traders too. In particular, we find that certain types of payment mechanism reduce people’s Disposition Effect: the bias to realize gains more readily than the losses. Additionally, we also find that different investing methods affect the reluctance to realize losses while alternative divesting systems influence the propensity to lock in winners.