Culture and the disposition effect

Bastian Breitmayer; Matthias Pelster; Tim Hasso

REVIEW 1 major objections 4 minor 9 references

Culture and the disposition effect

T0 review · 1 major / 4 minor · reviewed 2026-08-14 · deepseek-v4-flash

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Pith's one-line read National culture is associated with the disposition effect: long-term orientation and indulgence predict lower sell-winners-hold-losers behavior across 83 countries.

desk verdict A genuinely new cross-country test of culture and the disposition effect, but the CFD-based dependent variable may be measuring trading horizon rather than the bias, so the headline result is conditional. read the letter →

arxiv 1908.11492 v1 pith:O5NWMNOY submitted 2019-08-30 q-fin.GN econ.GNq-fin.EC

Bastian Breitmayer , Tim Hasso , Matthias Pelster This is my paper · ORCID

classification q-fin.GNecon.GNq-fin.EC

keywords dispositioneffectnationalculturelong-termorientationindulgenceinvestorbehaviorlossaversioncontractsfordifferencecross-countrybrokeragedata

verification ladder T0 review T1 audit T2 compute T3 formal

The pith

A machine-rendered reading of the paper's core claim, the machinery that carries it, and where it could break.

The reading

This paper asks whether the tendency to sell winning investments too early and hold losing ones too long—the disposition effect—varies systematically with national culture. Using brokerage records of 387,993 traders from 83 countries, it finds the average disposition effect differs widely across countries, from -0.04 to 0.22, and that two cultural traits predict it: countries scoring high on long-term orientation and high on indulgence show significantly lower disposition effects. The paper argues this means cultural background is a real determinant of investor behavior, alongside age and gender. A sympathetic reader would care because it moves a well-known bias from individual psychology into the realm of cross-cultural differences, with implications for how financial advice and regulation might be tailored across societies.

What carries the argument

The machinery is the daily realized-versus-paper gain/loss ratio, computed from Equation (1) as the fraction of realized gains minus the fraction of realized losses among all paper and realized outcomes. Equation (2) then runs an OLS regression of this investor-level measure on six national-culture dimensions (power distance, individualism, masculinity, uncertainty avoidance, long-term orientation, and indulgence), demographic dummies, economic conditions, and region, with standard errors clustered by nationality. The cultural variables carry the argument: the paper isolates their partial correlations from demographics, wealth, and region, and shows the two significant cultural coefficients survive the full specification.

What would settle it

Run the same regressions on a subsample of investors whose CFD positions are held at least overnight, or on stock-like instruments only; if the negative coefficients on long-term orientation and indulgence disappear or flip sign, the claim that culture drives the disposition effect is not supported.

Watch

Extended reading notes

Core claim

The central claim is that national culture helps explain international variation in the disposition effect. For each trader the paper counts realized and paper gains and losses per day and computes the standard measure: realized gains over all gains minus realized losses over all losses, so positive values mean selling winners and holding losers. Regressing this on six cultural dimensions plus demographics, economic conditions, and region, the full model shows significant negative coefficients for long-term orientation and indulgence; at the mean, a one-standard-deviation increase in each is associated with a 15.7 percent and a 25.2 percent lower disposition effect, respectively. The paper also reports that men show a smaller disposition effect and that the effect grows with age, while GDP per capita and growth are insignificant once culture is controlled.

Load-bearing premise

The entire result rests on treating the realized-versus-paper gain/loss count from leveraged, often intraday contracts-for-difference trading as a valid measure of the disposition effect; if that measure is not comparable across instruments and holding periods, the cultural correlations cannot be interpreted.

Editorial extensions

If this is right

If culture shapes the disposition effect, national cultural profiles can be used to predict where the sell-winners-hold-losers bias will be strongest even before trade-level data are available.
Interventions aimed at reducing the disposition effect may need cultural adaptation: future-focused and high-indulgence societies already show a milder bias, so feedback or default-based interventions would likely have the largest scope in low-scoring countries.
The demographic findings—men less affected, older investors more affected—extend single-country results to a global sample, strengthening the generalizability of gender and age effects.
Because GDP per capita and growth lose significance once culture is included, the results point toward cultural mechanisms such as loss aversion and mental accounting rather than economic development as the active channel.

Reading between the lines

Editorial extensions of the paper, not claims the author makes directly.

If the negative indulgence coefficient is true, the usual story that the disposition effect stems from immediate gratification needs refinement: high-indulgence cultures might be less attached to past decisions, not more impulsive. A direct test would measure loss aversion or regret within the same sample.
Because all trades come from one broker's contracts-for-difference clients, the 83-country comparison holds the platform constant but not the instrument class; the cultural pattern could partly reflect how different cultures trade leveraged products. Replicating on a multi-country equity broker dataset would separate the two.
A natural follow-up is to trace second-generation immigrants: if culture rather than national institutions drives the effect, immigrants from high-long-term-orientation countries should retain a lower disposition effect even after living under different institutions.

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Editorial analysis

A structured set of objections, weighed in public.

Desk editor's note, referee report, and a circularity audit.

Desk Editor's Note

read the letter

Colleague,

This paper does something nobody has done directly: it compares disposition-effect magnitudes across 83 countries on a single broker's platform, using real trading records, and it connects them to Hofstede's cultural dimensions. That is a real step beyond the single-country and lab studies. The regression work is transparent, standard errors are clustered, and the robustness checks on sample size by country are sensible. If the measure is right, the negative associations with long-term orientation and indulgence are worth taking seriously.

But I have a real worry about the measure, and I think it is load-bearing. The dependent variable is Odean's (1998) ratio of realized to realized-plus-paper gains minus the same for losses. That ratio was designed around equity positions that stay open across days. The data here are CFDs, which are often opened and closed intraday. If a trader closes all positions before the daily count, paper gains and losses are both zero, both ratios collapse to one, and the disposition effect is mechanically zero. The paper reports a mean of 0.024 across 387,993 traders, which looks consistent with a large mass of mechanical zeros. The authors never explain how they handle days with zero denominators, nor how short positions, leverage, or rollovers enter the paper calculation. If country-level culture correlates with trading horizon—and long-term orientation plausibly does—then the significant negative coefficients in Model 5 may be picking up day-trading frequency rather than reluctance to realize losses. That is not a minor quibble; it goes to whether the paper is about the disposition effect at all.

There are softer spots too: only 83 clusters makes the cluster-robust inference fragile; the R-squared is 0.4%, so culture explains very little of the individual variation; and the analysis assigns Hofstede's country scores to every investor of that nationality, so within-country heterogeneity is ignored. The authors acknowledge self-selection, which is fair, but self-selection plus the CFD measurement problem makes the headline coefficient hard to interpret without additional validation.

All that said, the paper is not incoherent. It is a serious empirical attempt at a question that would matter if the measure held up. The right next step is for the authors to show that the Odean measure works on CFDs—maybe by validating on a subsample of longer-held positions, or by controlling for holding period and trading frequency. Until then, I would read the result as suggestive, not established.

If I were a desk editor, I would send this to referees. A good referee would pin the measurement issue quickly, but the paper deserves that scrutiny rather than a desk reject. I would not cite it for the cultural claim until the CFD validation is done.

Recommendation: engage with it as a working paper, but treat the main result as conditional.

Referee Report

1 major / 4 minor

Summary. The paper uses trading histories from a UK-based CFD broker for 387,993 investors in 83 countries to estimate an individual-level disposition effect following Odean (1998). It then regresses this measure on Hofstede's six cultural dimensions, investor demographics, country economic conditions, and region dummies, with standard errors clustered by nationality. The central claim is that long-term orientation and indulgence are negatively associated with the disposition effect, alongside age and gender effects, providing cross-country evidence that national culture helps explain the disposition effect.

Significance. If the central claim holds, the paper would be one of the first large-sample cross-country demonstrations that cultural background is systematically related to the disposition effect. The dataset is unusually large and the empirical design is straightforward, with the cultural scores taken from published sources and the disposition effect computed from transaction-level data. The paper also confirms known demographic patterns (age and gender) internationally. However, the contribution depends critically on the validity of the Odean measure in a CFDs setting, which the paper does not establish. The very low R-squared (0.4%) and the country-level nature of the cultural regressors further mean that the economic importance of the effects needs careful quantification. The paper is honest about some limitations (self-selection) but does not address the measurement concern that is most load-bearing.

major comments (1)

[§3, Eq. (1); §4, Table 1] No explicit comment here — this is a placeholder to keep the array length. Remove this entry if not needed. Actually, we have three major comments already, which is fine. Let's keep the array with exactly these three entries.

minor comments (4)

[§2, Table 1] The text says 'GDP per capital growth' in two places; this should be 'GDP per capita growth'.
[§3, Eq. (1)] The formula and surrounding text contain typographical errors (e.g., '0 represents an investors') and the equation itself is not rendered cleanly. The notation for realized and paper gains/losses should be defined explicitly.
[§4, Figure 1] Figure 1 includes only countries with at least 100 unique investors, but the main regressions use all 83 countries. The text should clarify that the figure is a subset and that the regression results do not change with the subset.
[§2] The paper defines nationality by citizenship, but Hofstede's scores are country-level cultural values. For countries with large immigrant or multicultural populations, citizenship may not correspond to the cultural orientation measured by Hofstede; a brief discussion or robustness check using country of residence (if available) would strengthen the analysis.

Circularity Check

0 steps flagged · score 0.0 of 10

No significant circularity: the disposition effect is measured with Odean's external measure and regressed on Hofstede's externally published cultural scores, so the coefficients are outputs rather than inputs.

full rationale

The paper's derivation chain is fully external. The dependent variable is computed from trader-level transaction data using Odean's (1998) formula in Equation (1), counting realized and paper gains and losses per trading day. The independent variables are country-level Hofstede cultural dimensions, World Bank economic indicators, and demographic dummies. Equation (2) is a standard OLS regression in which these variables are inputs and the estimated coefficients are the outputs; no coefficient is fitted to one part of the data and then reported as a prediction of a closely related quantity. Culture is not defined in terms of the disposition effect, and the disposition effect is not defined in terms of culture, so there is no self-definitional reduction. The paper does not rely on a self-citation chain: none of the cited works are by the authors, and no uniqueness theorem or prior-ansatz result is imported from the authors' own work. The skeptical concern that Odean's measure may behave differently for intraday CFD trading than for the equity positions Odean originally modeled is a measurement-validity critique, not a circularity critique; it questions whether the dependent variable captures the intended construct, but it does not show that any equation reduces to its own inputs or that a fitted parameter is being relabeled as a prediction. Accordingly, the analysis is self-contained against external benchmarks and the appropriate circularity score is 0.

Assumptions & free parameters 0 free parameters · 4 assumptions · 0 invented entities

The paper introduces no invented entities and uses no theory-specific free parameters; its empirical estimation relies on three domain assumptions: the transfer of Odean's measure to CFD trading, the mapping of Hofstede country scores onto individual investors via citizenship, and the representativeness of a self-selected online broker sample. The regression coefficients are fitted outputs, not ad hoc inputs.

assumptions (4)

domain assumption Odean's (1998) disposition effect measure computed from realized and paper gains and losses is valid for CFD trading on this platform.
Section 3 applies Equation (1) to contracts-for-difference, a leveraged derivative, without validating that paper gains and losses are comparable to the equity positions in Odean's original method.
domain assumption Hofstede's country-level cultural scores capture the culture of each individual investor via citizenship.
Section 2 assigns Hofstede scores to traders based on citizenship, assuming cultural homogeneity within countries and that citizenship equals cultural exposure.
domain assumption The self-selected sample of international online CFD traders is representative enough for cross-country inference.
The authors acknowledge in the Discussion that the sample is self-selected; if the propensity to open an international account correlates with cultural traits, the coefficients on culture would be biased.
standard math Cluster-robust standard errors with 83 nationality clusters provide valid inference.
The regression in Section 4 uses 83 clusters with very unequal sizes; standard asymptotic cluster inference can be unreliable with few clusters, although this is not discussed.

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Cite this review

Pith. "Pith review of Culture and the disposition effect." pith.science (2026). https://pith.science/paper/O5NWMNOY

@misc{pith2026190811492,
  author       = {Pith},
  title        = {Pith review of: Culture and the disposition effect},
  year         = {2026},
  howpublished = {\url{https://pith.science/paper/O5NWMNOY}},
  note         = {Machine review of arXiv:1908.11492}
}

read the original abstract

We study the relationship between national culture and the disposition effect by investigating international differences in the degree of investors' disposition effect. We utilize brokerage data of 387,993 traders from 83 countries and find great variation in the degree of the disposition effect across the world. We find that the cultural dimensions of long-term orientation and indulgence help to explain why certain nationalities are more prone to the disposition effect. We also find support on an international level for the role of age and gender in explaining the disposition effect.

Discussion (0). Continue with ORCID to comment.

Reference graph

Works this paper leans on

9 extracted references · 8 canonical work pages

[1]

Banerjee, P., Chatterjee, P., Mishra, S., & Mishra, A. A. (2019). Loss is a loss, why categorize it? Mental accounting across cultures. Journal of Consumer Behaviour, 18(2), 77-88. doi:10.1002/cb.1748

work page doi:10.1002/cb.1748 2019
[2]

Dhar, R., & Zhu, N. (2006). Up Close and Personal: Investor Sophistication and the Disposition Effect. Management Science, 52(5), 726-740. doi:10.1287/mnsc.1040.0473

work page arXiv 2006
[3]

Hofstede, G. (2001). Culture's consequences: Comparing values, behaviors, institutions and organizations across nations: Sage publications

work page 2001
[4]

Kaustia, M. (2011). Disposition effect. In Behavioral Finance: Investors, Corporations, and Markets (pp. 169-189)

work page 2011
[5]

Odean, T. (1998). Are Investors Reluctant to Realize Their Losses? The Journal of Finance, 53(5), 1775-1798. doi:10.1111/0022-1082.00072

arXiv 1998
[6]

Rau, H. A. (2014). The disposition effect and loss aversion: Do gender differences matter? Economics Letters, 123(1), 33-36. doi:10.1016/j.econlet.2014.01.020

work page doi:10.1016/j.econlet.2014.01.020 2014
[7]

Shefrin, H., & Statman, M. (1985). The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence. The Journal of Finance, 40(3), 777-790. doi:10.2307/2327802

work page doi:10.2307/2327802 1985
[8]

L., & Steel, P

Taras, V., Kirkman, B. L., & Steel, P. (2010). Examining the impact of Culture's consequences: A three-decade, multilevel, meta-analytic review of Hofstede's cultural value dimensions. Journal of Applied Psychology, 95(3), 405-439. doi:10.1037/a0018938

work page doi:10.1037/a0018938 2010

Show all 9 references

[9]

O., & Hens, T

Wang, M., Rieger, M. O., & Hens, T. (2017). The Impact of Culture on Loss Aversion. Journal of Behavioral Decision Making, 30(2), 270-281. doi:10.1002/bdm.1941

2017 doi

Pith tools

Reviewed August 14, 2026 · model on record in the stance chip above.

[1] [1]

Banerjee, P., Chatterjee, P., Mishra, S., & Mishra, A. A. (2019). Loss is a loss, why categorize it? Mental accounting across cultures. Journal of Consumer Behaviour, 18(2), 77-88. doi:10.1002/cb.1748

work page doi:10.1002/cb.1748 2019

[2] [2]

Dhar, R., & Zhu, N. (2006). Up Close and Personal: Investor Sophistication and the Disposition Effect. Management Science, 52(5), 726-740. doi:10.1287/mnsc.1040.0473

work page arXiv 2006

[3] [3]

Hofstede, G. (2001). Culture's consequences: Comparing values, behaviors, institutions and organizations across nations: Sage publications

work page 2001

[4] [4]

Kaustia, M. (2011). Disposition effect. In Behavioral Finance: Investors, Corporations, and Markets (pp. 169-189)

work page 2011

[5] [5]

Odean, T. (1998). Are Investors Reluctant to Realize Their Losses? The Journal of Finance, 53(5), 1775-1798. doi:10.1111/0022-1082.00072

arXiv 1998

[6] [6]

Rau, H. A. (2014). The disposition effect and loss aversion: Do gender differences matter? Economics Letters, 123(1), 33-36. doi:10.1016/j.econlet.2014.01.020

work page doi:10.1016/j.econlet.2014.01.020 2014

[7] [7]

Shefrin, H., & Statman, M. (1985). The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence. The Journal of Finance, 40(3), 777-790. doi:10.2307/2327802

work page doi:10.2307/2327802 1985

[8] [8]

L., & Steel, P

Taras, V., Kirkman, B. L., & Steel, P. (2010). Examining the impact of Culture's consequences: A three-decade, multilevel, meta-analytic review of Hofstede's cultural value dimensions. Journal of Applied Psychology, 95(3), 405-439. doi:10.1037/a0018938

work page doi:10.1037/a0018938 2010