Disposition effect
The disposition effect is the tendency, or disposition, of investors to sell their winning positions too early and to hold their losing positions too long. It is one of the first, and most studied investor behavior patterns documented in the modern behavioral finance literature.
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Disposition effect
The disposition effect is the tendency, or disposition, of investors to sell their winning positions too early and to hold their losing positions too long. It is one of the first, and most studied investor behavior patterns documented in the modern behavioral finance literature.
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What is the disposition effect? The disposition effect describes our tendency to sell winning investments too early while holding onto losing investments for too long. This behavior is driven by a combination of loss aversion and the hope of potential gains, even at the expense of long-term profitability. This bias can lead to suboptimal investment decisions, reducing overall returns and increasing exposure to risk.
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