Is the disposition effect weaker under public news?

Giovannetti, Bruno Cara
Chague, Fernando Daniel
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How do external news events influence established behavioral biases in stock trading? Our research, set in Brazil’s bustling stock market, seeks to answer this by examining the interplay between the disposition effect and relevant news issued by the Securities and Exchange Commission of Brazil (CVM). Analyzing over 7,2 million brazilian retail investor’s trades between January 2012 and December 2018 of the 10 most traded stocks on B3 (the brazilian stock exchange), we first estimate a positive and significant disposition effect following the method proposed by Odean (1998). Our novel approach is to connect the arrival of relevant facts issued by the CVM with the disposition effect through a logistic regression specification. The results suggests that the arrival of relevant facts tempers the disposition effect’s intensity, and this effect persists for one more trading period. This study sheds light on the intricate dance between investor behavior and external stimuli, offering fresh perspectives on the role of information in financial decision-making.

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