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This paper examines, using comprehensive trading records of Finnish investors, how investors with different capital gain positions react to earnings announcements. I find that the magnitude of gains and losses strongly affect individual investors' abnormal selling volume. The larger the gains or losses the less the investors will sell. This magnitude effect tends to be stronger in the domain of losses than gains. I also find that individual investors holding losses react somewhat less to corporate news than those carrying gains, but this disposition effect is weaker than the magnitude effect. These results provide support for the prospect theory. |
