18 Questions
Why are rational investors slow to realize gains and quick to realize losses?
To reduce tax bills
What is the disposition effect commonly observed among investors?
Being quick to realize gains and slow to realize losses
What is the 'disposition puzzle' in the context of investor behavior?
Why investors display a tendency to hold onto losing investments
What combination of factors contributes to the solution of the disposition puzzle?
Expected utility and prospect theories, cognitive shortcuts, and self-control
Why do professional stock traders who incur losses in morning trades trade more aggressively in the afternoon?
To avoid regret and recoup their losses
Which common behavioral errors contribute to the disposition effect among investors?
Hindsight, regret, mental accounting, and self-control
Howard Snyder believed that realizing losses can help reduce taxes.
True
Investors are always eager to realize losses in their investments.
False
Realizing gains yields the emotional benefits of pride.
True
People experience regret when observing a positive return for a stock they chose not to purchase.
True
People are willing to repurchase stocks whose prices increased after they sold them.
False
Large disposition effects are exhibited by people who show great reluctance to repurchase stocks.
True
LeRoy Gross referred to the reluctance to realize losses as the 'getevenitis disease'.
True
The 'getevenitis disease' has had a positive impact on investment portfolios.
False
Performance monitoring can lead to higher reported performance but lower actual performance in certain conditions.
True
Normal people tend to mix all their investments into one mental account for easier tracking.
False
One reason people hesitate to sell a stock at a loss is because they prioritize emotional pride over utilitarian gains.
True
Individuals who trade stocks may shift responsibility for gains and losses based on emotional reactions.
True
Explore the concept of the disposition effect where investors tend to realize gains quickly but hold onto losses. Learn how this behavior can affect investment decisions and tax bills in various countries.
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