Do Short Exposure and Systematic Risk Exposure Drive Asymmetries in the Disposition Effect?

TL;DR

This paper investigates how short and long exposure positions, along with systematic risk, influence the disposition effect in ETF trading, revealing that framing and risk exposure shape investor behavior.

Contribution

It extends the analysis of the disposition effect by incorporating leverage, long short exposures, and systematic risk, and introduces a new Value metric and an open-source R package.

Findings

Short positions show a weaker disposition effect under narrow framing.

Asymmetry reverses in positively performing portfolios under integrated framing.

Systematic risk amplifies behavioral asymmetries across positions.

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.