Title: The Disposition Effect among Liquidity Providers: Evidence from Uniswap V3
Authors: Xinyi Chen (Department of Economics and Finance, TalTech), Tõnn Talpsepp (Department of Economics and Finance, TalTech)

Abstract:

The disposition effect is well documented among investors who hold directional assets such as stocks. We study whether it also appears among liquidity providers (LPs) in Uniswap V3, who supply assets to trading pools and earn fees. The challenge is that a price change affects both the return of a position and the reasons to keep providing liquidity. Using 5,163,117 daily observations of 128,877 positions in 14 pools from 2021 to 2025, we estimate a hazard model of true exits that compares positions in the same pool on the same day, includes wallet fixed effects and controls for observable conditions of market making. Positions at a gain have a 14.1% higher hazard of a true exit than positions at a loss or at zero return. Under alternative classifications of gains and of days at zero return, the estimate ranges from 6.2% to 17.3% and remains significant. Under two of these measures, the asymmetry is stronger when the price is outside the chosen range. In the main sample, we find no evidence that LPs treat fees separately from changes in position value, as stock investors do with dividends, and the asymmetry remains when gains include fees. These results extend the evidence on the disposition effect to investors who make markets and add a behavioral dimension to the study of liquidity provision.

The public research seminars of the Department of Economics and Finance (DEF) at Tallinn University of Technology  usually take place on the second and fourth Wednesdays of the month both in onsite and online format, unless announced otherwise. The seminar will last one hour, presentation will last approximately 45 minutes followed by 15 minutes of discussion. The seminars are held in English. Questions about the seminar can be sent to the seminar coordinator Karsten Staehr [email protected]