Faster learning in troubled times: How market conditions affect the disposition effect

摘要

This paper examines how bull and bear market conditions affect the disposition effect and especially learning in regard to this behavioural bias. We find evidence that investors are subject to the disposition effect in each market phase but with a far stronger propensity during the bear market. However, we show that investors also make the greatest progress in learning during this period. We attribute these improved learning results to the prompter feedback received during bear markets and the harsher financial consequences of the disposition effect at such times. The learning achievements identified can mainly be traced back to “learning by doing” and less to “learning about ability”. Our results suggest that future studies about learning in financial markets should consider the market environment as an important determinant.