Terrence Odean examines the disposition effect, the tendency of investors to hold losing investments too long and sell winning investments too soon. Using trading records from 10,000 accounts at a discount brokerage, he finds that investors prefer to realize gains rather than losses. This behavior is not due to portfolio rebalancing, higher trading costs, or subsequent performance. For taxable investments, it leads to lower after-tax returns, with tax-motivated selling most evident in December. The disposition effect is linked to prospect theory, which suggests investors are risk-averse and value gains and losses relative to a reference point. Investors may sell winners to rebalance portfolios or believe their losers will outperform. However, even after controlling for these factors, the disposition effect remains. Investors continue to sell winners and hold losers, consistent with prospect theory or a mistaken belief in mean reversion. Odean's data show that investors realize gains more readily than losses, with a higher proportion of gains realized than losses. This is true for the entire year and especially in December. The results are robust across different analyses, including controlling for rebalancing, trading costs, and portfolio size. Investors also realize losses at a higher rate in December, suggesting tax-motivated selling. The study finds that investors are more likely to sell winners and hold losers, even when controlling for alternative explanations such as rebalancing, trading costs, and price ranges. This behavior is consistent with prospect theory and a mistaken belief in mean reversion. The results are supported by extensive statistical analysis, including t-tests and comparisons across different time periods and investor groups. Overall, the study confirms that investors are reluctant to realize losses and prefer to sell winners, leading to suboptimal tax outcomes.Terrence Odean examines the disposition effect, the tendency of investors to hold losing investments too long and sell winning investments too soon. Using trading records from 10,000 accounts at a discount brokerage, he finds that investors prefer to realize gains rather than losses. This behavior is not due to portfolio rebalancing, higher trading costs, or subsequent performance. For taxable investments, it leads to lower after-tax returns, with tax-motivated selling most evident in December. The disposition effect is linked to prospect theory, which suggests investors are risk-averse and value gains and losses relative to a reference point. Investors may sell winners to rebalance portfolios or believe their losers will outperform. However, even after controlling for these factors, the disposition effect remains. Investors continue to sell winners and hold losers, consistent with prospect theory or a mistaken belief in mean reversion. Odean's data show that investors realize gains more readily than losses, with a higher proportion of gains realized than losses. This is true for the entire year and especially in December. The results are robust across different analyses, including controlling for rebalancing, trading costs, and portfolio size. Investors also realize losses at a higher rate in December, suggesting tax-motivated selling. The study finds that investors are more likely to sell winners and hold losers, even when controlling for alternative explanations such as rebalancing, trading costs, and price ranges. This behavior is consistent with prospect theory and a mistaken belief in mean reversion. The results are supported by extensive statistical analysis, including t-tests and comparisons across different time periods and investor groups. Overall, the study confirms that investors are reluctant to realize losses and prefer to sell winners, leading to suboptimal tax outcomes.