9. Trading Behavior

Question 1

Explain Disposition effect + behavioral sources

Answer 1

Tendency of investors to hold losers and sell winners.

Prospect theory can’t explain it alone,
Realization utility: emotions from buying and selling
Regret aversion: regret and pride

Question 2

Explain repurchase effect + behavioral sources

Answer 2

Investors are less likely to repurchase a stock that they previously sold for a loss than they to repurchase one that a made a gain on it.
They are also less likely to repurchase a stock that have gone up rather than down.

• Repeat actions that resulted in emotional pleasure rather than emotional pain
• Anticipated regret

Question 3

Explain excessive trading

Answer 3

overconfidence the precision of their information and underestimate the precision of others information