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Momentum and the Disposition Effect: The Role of Individual Investors


  • We are grateful to Bill Christie (the editor) and special thanks are due to an anonymous referee for many constructive and illuminating comments and suggestions, which immensely helped us improve the paper. We also thank Susan Ji (the discussant) and other participants at FMA 2008 meeting at Dallas for helpful comments. Jungshik Hur and Vivek Sharma would like to acknowledge the financial support from their respective universities for the study. We are responsible for any errors.


We hypothesize that disposition effect-induced momentum documented in Grinblatt and Han (2005) should be stronger in stocks with greater individual investors’ presence since individual investors are more prone to the disposition effect. We find strong evidence for our hypothesis for a large sample of NYSE/AMEX/NASDAQ stocks from the end of 1980 to 2005. Our results hold across different momentum strategies using alternative ways of defining individual investors’ presence in a stock and maintain even after controlling for variables known to drive momentum. Furthermore, we find that our results are stronger for hard-to-value stocks consistent with the findings of Kumar (2009).