Abstract

The paper presented below tests the hypothesis that virtual investors (those investing virtual money to earn a virtual profit) succumb to the same pressures that have been found for investors who invest real money in an actual stock exchange. We focused on two issues: the disposition effect (i.e., the investors' propensity to sell stocks that are gaining value, while simultaneously holding stocks that are losing value) and the use of investing strategies that show the investor's belief in a continuation of the current trend. Our empirical research based on a data set of virtual investors' transaction records confirmed the presence of the disposition effect for virtual investment game samples, and provides support for the strong impact of this effect. With regard to investing strategies, we obtained results contrary to what we expected. Our subjects tended to employ contrarian strategies that showed belief in trend reversal, at least in the short term. This finding is not consistent with the common tendency of real money stock investors who tend to employ a momentum strategy that believes in continuation of the trend. These results suggest that the strategy used by investors depends on the specific situation and investing environment.

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