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Predicting Contemporary Volume with Historic Volume at Differential Price Levels: Evidence Supporting the Disposition Effect

Stephen P. Ferris, Robert A. Haugen and Anil K. Makhija
The Journal of Finance
Vol. 43, No. 3, Papers and Proceedings of the Forty-Seventh Annual Meeting of the American Finance Association, Chicago, Illinois, December 28-30, 1987 (Jul., 1988), pp. 677-697
Published by: Wiley for the American Finance Association
DOI: 10.2307/2328191
Stable URL: http://www.jstor.org/stable/2328191
Page Count: 21
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Predicting Contemporary Volume with Historic Volume at Differential Price Levels: Evidence Supporting the Disposition Effect
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Abstract

This paper presents empirical evidence comparing two models of trading in equities--the well-known tax-loss-selling hypothesis and "the disposition effect." According to the disposition effect, investors are reluctant to realize losses but are eager to realize gains. This paper distinguishes between the two models with a new methodology that examines the relationship between volume at a given point in time and volume that took place in the past at different stock prices. The evidence overwhelmingly supports the disposition effect not only as a determinant of year-end volume, but also as a determinant of volume levels throughout the year.

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