Psychology of Investing Chapter 3

Psychology of Investing Chapter 3 - addition to the...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
There is more pain in the regret of commission than the regret of omission. The regret of commission is the regret of acting taking a different action than before and the regret of omission is the regret of not acting. Financial economists, Hersh Shefrin and Meir Statman and discovered the disposition effect, the tendancy to sell winners too early and ride losers too long from a result of fearing regret and seeking pride. The idea of weath-maximizing does not play a role as the disposition effect does. Although on a tax basis, selling a losing stock would lead to overall more capital, people will still sell their winners and take less money due to pride. In
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: addition to the disposition effect, their will be higher volume for stocks that are bullish and lower volume for stock that is bearish as a result of people selling their gains and holding their losses. Individuals are willing to sell their gains quick compared to losers which will be held until rebounded. In a study, under a month, gains are 45 percent, 1 to 6 months were 7.8, 6 to 12 were 5.1 and more than one year was 4.5 percent. Investors acheive more pride from a larger gain but the reluctance to sell a loser is the same regardless if big or small....
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online