Disposition Effect: Why Retail traders Lose in Stock Market

Disposition Effect: It's a tendency to close a profitable position early and hold on to a losing position longer, hoping that prices recover.
Researchers working at the Centre For Analytical Finance at Indian School of Business, after examining terabytes of data pertaining to trading behavior of retail and institutional traders, found that trading done by behaviorally biased and short-term oriented retail traders leads to wealth transfer from individuals to institutions.
Retail investors are mostly dubbed as "noise traders", who adversely impact the price efficiency of the market. Some have argued that such excessive short-term trading scuttles the functioning of arbitrage mechanism by increasing the deviation between actual price and the expected price. However, others have argued that presence of retail investors provides liquidity to the market and hence, is useful. The recent spurt in behaviour finance research has led to a careful examination of consequences of short-term


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