Paper: arXiv 2605.00016

Authors: Lorenzo Mazzucchelli, Marco Zanotti, Luca Vincenzo Ballestra, Andrea Guizzardi

Abstract

This study examines the disposition effect in both long and short exposure positions in FTSE MIB tracking ETFs using a unique dataset of almost 9 million individual transactions. Building on the integrated framing approach, we extend the analysis to explicitly incorporate leverage and long short exposures, allowing us to assess how portfolio context and systematic risk exposure jointly are associated to investors realization behavior. Methodologically, we generalize Odean canonical Count and Total measures to wide and integrated framing, introduce a novel Value metric that captures the return thresholds required to realize gains versus losses, and implement these measures in dispositionEffect, an open-source R package for large-scale intraday data. We show that short positions exhibit a weaker disposition effect than long positions under narrow framing, but that this asymmetry reverses in positively performing portfolios under integrated framing. Systematic risk further amplifies these behavioral asymmetries across positions. Overall, our findings demonstrate that the disposition effect is not solely asset-specific, but is critically shaped by the interaction between portfolio context, position type, and systematic risk exposure. More broadly, the results are consistent with the joint predictions of Prospect Theory and Regret Theory, highlighting the central role of framing in investor decision-making.

Complexity vs Empirical Score

  • Math Complexity: 3.5/10
  • Empirical Rigor: 8.5/10
  • Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper relies heavily on empirical testing using a massive intraday dataset of nearly 9 million transactions to analyze behavioral finance effects. It introduces novel extensions to Odean’s canonical metrics and provides high reproducibility through an open-source R package, though advanced mathematical proofs are minimal.

Research Flowchart

  flowchart TD
    A["Research Question: How do short exposure, portfolio framing, & systematic risk drive disposition effect asymmetries?"] --> B["Data Inputs: ~9M intraday transactions in FTSE MIB tracking ETFs (Long, Short, Leveraged)"]
    B --> C["Methodology: Generalized Odean measures (Count & Total) to Wide/Integrated Framing"]
    B --> D["Software Tool: Developed 'dispositionEffect' R package & novel Value metric (return thresholds)"]
    C --> E["Behavioral Analysis: Assess gain/loss realization across Long vs. Short positions & Portfolio Contexts"]
    D --> E
    E --> F["Key Outcome: Short positions show weaker disposition effect under narrow framing, but reverse in positive portfolios under integrated framing"]
    E --> G["Key Outcome: Systematic risk amplifies asymmetries; results align with Prospect & Regret Theories"]