Management Practice Insights
DOI: 10.59571/mpi.v4i2.7
Year: 2026, Volume: 4, Issue: 2, Pages: 114-119
Original Article
Anshul Vermai*
iS.P. Jain Institute of Management & Research
*Corresponding author: [email protected]
Received Date:22 May 2026, Accepted Date:28 September 2026, Published Date:15 October 2026
Portfolio managers in equity markets are often too quick to put their winning investments on the market and too slow to let go of the losers. This behaviour is known as the disposition effect. For CIOs, portfolio managers, wealth advisers, the investment committee members at asset management companies, pension funds, and family offices, this recurring behavioural bias can quietly weaken portfolio performance. It can erode risk-adjusted returns, trigger avoidable taxes, and leave capital tied up in underperforming positions. The conventional wisdom attributes this behaviour to loss aversion - the idea that managers avoid selling because crystallising a loss feels more painful than the reward of realising an equivalent gain. Research by Qiu, van de Kuilen, Weitzel, and Xu challenges this reasoning.1 Their study suggests the problem is driven by how managers revise their views when the new information is received. Trading experience alone does not seem to correct this bias. Therefore, investment firms should redesign decision processes so managers are prompted to reassess their beliefs as prices and evidence change. The solution lies in identifying interventions that can strengthen sell discipline without replacing sound investment judgment
1 Effect: Evidence from Financial Professionals,” Journal of Financial and Quantitative Analysis 61, no. 3 (2026): 1247–82, https://doi.org/10.1017/S0022109025102159. 2 Terrance Odean, “Are Investors Reluctant to Realize Their Losses?,” The Journal of Finance 53, no. 5 (1998): 1775–98, https://doi.org/10.1111/0022-1082.00072. 3 Odean, “Are Investors Reluctant to Realize Their Losses?” 4 Gjergji Cici, “The Prevalence of the Disposition Effect in Mutual Funds' Trades,” Journal of Financial and Quantitative Analysis 47, no. 4 (2012): 795–820, https://doi.org/10.1017/S0022109012000348. 5 Qiu et al., “Irrational Beliefs May Drive the Disposition Effect.” 6 The Investment Company Institute, “Trends in Mutual Fund Investing, July 2026,” The Investment Company Institute, August 28, 2026, https://www.ici.org/research/stats/trends_07_26. 7 Sundar Sethuraman, “Demat Tally Surges to 185 Million in 2024 with 46 Million New Additions,” Business Standard (Mumbai), January 8, 2025, https://www.businessstandard. com/markets/news/demat-tally-surges-to-185- million-in-2024-with-46-million-new-additions- 125010800853_1.html. 8 Andrea Frazzini, “The Disposition Effect and Underreaction to News,” The Journal of Finance 61, no. 4 (2006): 2017–46, https://doi.org/10.1111/j.1540-6261.2006.00896.x. 9 Qiu et al., “Irrational Beliefs May Drive the Disposition Effect.” Jianying Qiu et al., “Irrational Beliefs May Drive the Disposition10 Rates,” September 17, 2026, Table, https://www.irs.gov/individuals/internationaltaxpayers/ yearly-average-currency-exchange-rates; SI Reporter, “Paytm Hits New All-Time Low, Stock Tanks 26% in Two Weeks,” Markets, Business Standard (Mumbai), November 22, 2022, https://www.business-standard.com/article/markets/paytmhits- new-all-time-low-stock-tanks-26-in-two-weeks- 122112200454_1.html. 11Benjamin Enke and Thomas Graeber, “Cognitive Uncertainty,” The Quarterly Journal of Economics 138, no. 4 (2023): 2021–67, https://doi.org/10.1093/qje/qjad025. 12Fundsmith LLP, “Annual Letters to Shareholders,” https://www.fundsmith.co.uk/fsf/documents/. Author calculations based on various years 13 Norges Bank Investment Management, Government Pension Fund Global Annual Report (2010), https://www.nbim.no/globalassets/reports/2009/nbim_annual report09.pdf. 14 U.S. Commodity Futures Trading Commission and U.S. Securities and Exchange Commission, Findings Regarding the Market Events of May 6, 2010 (2010), https://www.sec.gov/files/marketevents-report.pdf; U.S. Securities and Exchange Commission, Research Note: Equity Market Volatility on August 24, 2015 (2015), https://www.sec.gov/marketstructure/research/equity_market _volatility.pdf. Internal Revenue Service, “Yearly Average Currency Exchange
© 2026 Published by SPJIMR. This is an open-access article under the CC BY license (https://creativecommons.org/licenses/by/4.0/)
Subscribe now for latest articles and news.
