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The disposition effect, first described by Shefrin and Statman (1985), refers to the investors’ tendency to sell securities whose prices have increased since purchase rather than those have fallen in value. This trading behavior is well documented by evidence from both individual investors and institutions1, across different asset markets2, and around the world3. Several recent studies further explore the asset pricing implications of this behavioral pattern, and propose it as the source of a few return anomalies, such as price momentum (eg, Grinblatt and Han (2005)). In these studies, the binary pattern of the disposition effect (a difference in selling propensity conditional on gain versus loss) is usually further modeled as a monotonically increasing relation of investors’ selling propensity in response to past profits. However, new evidence calls this view into question. Ben-David and Hirshleifer (2012) examine individual …