1. ¹PhD, is a full professor of finance and Coordinator of Finance and Economics in the School of Business at Indiana University Southeast. He teaches investments and international finance. His research interests are in investment behaviour and business ethics, and he has published articles in journals such as the Journal of Business and Psychology and the Journal of Business Ethics.
2. ²PhD, is a full professor of psychology and Director of the Shyness Research Institute at Indiana University Southeast. He has published articles in many journals, such as Basic and Applied Psychology, and written several books, such as The Psychology of Personality: Viewpoints, Research, and Applications (1998, BrooksCole) and Shyness: A Bold New Approach (2000, HarperCollins), which has been translated into six different languages. His work has been featured in national TV talk shows and newspapers such as The Wall Street Journal and The Times.
3. ³PhD, is an associate professor of finance and Director of the Graduate Programs in the School of Business at Indiana University Southeast. He has published investment articles in journals such as the Journal of Business Finance & Accounting and also authored a book, Pricing Options with Futures-Style Margining: A Genetic Adaptive Neural Network Approach (2000, Garland). His professional contributions also include appearing as a guest in local radio talk shows.

Correspondence: Alan S Wong, School of Business, Indiana University Southeast, 4201 Grant Line Road, New Albany, IN, 47150, USA, Tel: +1 (812) 941 2423; Fax: +1 (812) 942 2672; E-mail: awong@ius.edu

Received 7 February 2006.

Abstract

The tendency of investors and managers to sell assets with gains early as opposed to assets with losses is called the asset disposition effect. An experiment was conducted to determine the impact of different price conditions and selected personal characteristics on the asset disposition effect. Support for the asset disposition effect was found in conditions where asset price was highly uncertain. None of the experiment participants' personal characteristics, however, was found to be a significant predictor of the disposition effect. The results indicate that the asset disposition behaviour could be explained by the mean reversion theory and participants' use of mental reference points. The possible presence of disposition effect in an investment asset market suggests that the use of mechanical rules, such as stop-loss orders, might improve the decision-making process of determining when to sell a losing asset. The reluctance to sell assets with declining values might not be optimal in some cases.