Realization utility

Nicholas Barberis, Wei Xiong

Research output: Contribution to journalArticlepeer-review

197 Scopus citations


A number of authors have suggested that investors derive utility from realizing gains and losses on assets that they own. We present a model of this "realization utility," analyze its predictions, and show that it can shed light on a number of puzzling facts. These include the disposition effect, the poor trading performance of individual investors, the higher volume of trade in rising markets, the effect of historical highs on the propensity to sell, the individual investor preference for volatile stocks, the low average return of volatile stocks, and the heavy trading associated with highly valued assets.

Original languageEnglish (US)
Pages (from-to)251-271
Number of pages21
JournalJournal of Financial Economics
Issue number2
StatePublished - May 2012

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


  • Behavioral finance
  • D03
  • Disposition effect
  • G11
  • G12
  • Individual investors
  • Trading


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