Positive and Negative Emotions: Can the Disposition Effect Be Reversed?

This study investigates emotional influences on the disposition effect, a behavioural bias in financial decisions. Using an experimental design with MSc in Finance students, and traditional measuring approaches, we find a robust presence of the disposition effect. Positive (e.g. sexual activity) and negative (e.g. bad news) incidental emotions moderate the effect. Positive emotions reverse the disposition effect by promoting optimism. Negative emotions amplify the effect for winners, while combined (positive and negative) emotions override it. Gender differences suggest different emotional effects. Our findings reveal the complex relationship between emotions and financial behaviour and shed light on the mechanisms of the disposition effect