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Do Large Gains Make Willing Sellers?

Published online by Cambridge University Press:  08 April 2021

Dong Hong ,
Roger K. Loh  and
Mitch Warachka Open the ORCID record for Mitch Warachka [Opens in a new window]
Dong Hong
Affiliation:
Independentdhong1974@gmail.com
Roger K. Loh
Affiliation:
Singapore Management Universityrogerloh@smu.edu.sg
Mitch Warachka*
Affiliation:
Chapman University
*
warachka@chapman.edu (corresponding author)
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Abstract

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Using unique real estate data that allow for accurately measured capital gains, we examine whether sell propensities depend on the magnitude of a seller’s capital gain. We find that short-term sell propensities are flat over losses and increasing in gains. Consistent with their higher sell propensities, selling prices are lower for properties with larger gains. Large-sized short-term stock investments also have sell propensities that are flat over losses and increasing in gains, although the sell propensities of typical-sized short-term stock investments are V-shaped. Our findings provide empirical support for theories of realization utility.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 4 , June 2022 , pp. 1486 - 1528
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NCCreative Common License - SA
This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-ShareAlike licence (http://creativecommons.org/licenses/by-nc-sa/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the same Creative Commons licence is included and the original work is properly cited. The written permission of Cambridge University Press must be obtained for commercial re-use.
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee, Jennifer Conrad (the editor), and Peter Kelly (a referee) for their valuable comments. We also thank Tom Aabo, Sumit Agarwal, Brad Barber, Jiangze Bian, Hyun-Soo Choi, Phil Dybvig, Bing Han, David Hirshleifer, Harrison Hong, Maggie Hu, Roni Michaely, Milena Petrova, Todd Sinai, Joshua Spizman, Avanidhar Subrahmanyam, Wei Xiong, as well as seminar participants at Claremont McKenna College, Loyola Marymount University, Singapore Management University, and Tsinghua University for their helpful comments. We acknowledge financial support from the Sim Kee Boon Institute for Financial Economics.

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