Fully Closed: Individual Responses to Realized Gains and Losses

Steffen Meyer; Michaela Pagel

doi:10.1111/jofi.13122

Fully Closed: Individual Responses to Realized Gains and Losses

^*Corresponding author for this work

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Abstract

We analyze how individuals reinvest realized capital gains and losses exploiting plausibly exogenous sales due to mutual fund liquidations. Individuals reinvest 83% if a forced sale results in a gain relative to the initial investment; but reinvest only 40% in the event of a loss. This difference is statistically significant for more than six months and arises because many individuals forced to realize a loss choose not to reinvest anything and some even exit the stock market altogether. Individuals treat realized losses differently from paper losses and are discouraged from investing more and participating in the stock market.

Original language	English
Journal	Journal of Finance
Volume	77
Issue	3
Pages (from-to)	1529-1585
Number of pages	57
ISSN	0022-1082
DOIs	https://doi.org/10.1111/jofi.13122
Publication status	Published - Jun 2022
Externally published	Yes

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10.1111/jofi.13122

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abstract = "We analyze how individuals reinvest realized capital gains and losses exploiting plausibly exogenous sales due to mutual fund liquidations. Individuals reinvest 83% if a forced sale results in a gain relative to the initial investment; but reinvest only 40% in the event of a loss. This difference is statistically significant for more than six months and arises because many individuals forced to realize a loss choose not to reinvest anything and some even exit the stock market altogether. Individuals treat realized losses differently from paper losses and are discouraged from investing more and participating in the stock market.",

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Fully Closed: Individual Responses to Realized Gains and Losses

Abstract

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