Socially responsible investors and the disposition effect

Abstract

In this paper we analyze the possible interaction between socially responsible investment and the disposition effect—the tendency to hold losing stocks too long and sell winning stocks too early. We analyze trading and portfolio data from a large retail bank and find that socially responsible investors display a greater disposition effect than conventional investors. Only when investors invest a substantial proportion of their portfolio in socially responsible stocks do we find evidence for a differential disposition effect, whereas we do not find evidence for a relationship between the percentage invested in socially responsible stocks and the disposition effect.