Dong Hong, Roger K. Loh, Mitch Warachka
Journal of Financial and Quantitative Analysis 57(4), 1486–1528 (2022).
Dong Hong, Roger K. Loh, Mitch Warachka. Do Large Gains Make Willing Sellers? Journal of Financial and Quantitative Analysis 57(4), 1486–1528 (2022).
IN ONE SENTENCE:
The paper examines selling decisions in real estate and finds that larger gains make investors more willing to sell, with property owners accepting lower prices to realize those gains.
Abstract:
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.
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Keywords:
Realization utility · Selling decisions · Capital gains · Real estate · Household finance · Disposition effect · Investment behavior · Property transactions · Stock investments