The Disposition Effect and Momentum: Evidence from Norwegian Household Investors

Abstract

Using a novel investor accounts dataset from Norway, I find that household investors are particularly likely to sell stocks when they experience a capital gain between 0% and 5%. The likelihood of a sale falls quickly both below and above this range; big losses and big gains are equally unlikely to trigger a sale. Thus, the disposition eff ect is driven by sales close to break-even, rather than a monotonically increasing relation between current capital gain and the likelihood of a sale. I also find that this household investor trading pattern contributes to momentum in small cap stocks.