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On the neural substrates of the disposition effect and return performance

Author

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  • Dorow, Anderson
  • Da Costa Jr, Newton
  • Takase, Emilio
  • Prates, Wlademir
  • Da Silva, Sergio

Abstract

We experimentally assess the disposition effect and return performance, using electroencephalogram to measure the brain activity of the participants. The design of the experiment follows a previous protocol (Frydman et al., 2014). Our sample was made up of 12 undergraduates (all male, age range 18 to 29, mean age 22.2) and five professional stock traders (all male, age range 21 to 37, mean age 30.2). We find neural support for the finding that professionals are more likely to escape the disposition effect (Da Costa Jr et al., 2013). We also find higher heart rate variability and brainwave activation are positively related to stock returns. Electrical activity tends to increase with returns, mainly for the beta waves that are activated in conscious states.

Suggested Citation

  • Dorow, Anderson & Da Costa Jr, Newton & Takase, Emilio & Prates, Wlademir & Da Silva, Sergio, 2017. "On the neural substrates of the disposition effect and return performance," MPRA Paper 83354, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:83354
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    File URL: https://mpra.ub.uni-muenchen.de/83354/1/MPRA_paper_83354.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    disposition effect; neurofinance; beta electric brain wave; psychophysiology;
    All these keywords.

    JEL classification:

    • D87 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Neuroeconomics
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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