The Disposition to Sell Winners Too Early and Ride Losers too Long: Theory & Evidence. By: Hersh Shefrin & Meir Statman ‘ The Journal of Finance’ Dec 1984 Presented by: Ashraf Yaghi. Introduction.
By: Hersh Shefrin & Meir Statman
‘The Journal of Finance’ Dec 1984
Presented by: Ashraf Yaghi
-There are 2 outcomes to this situation-
2. Hold the stock for one more period, with a 50-50 odds between losing an additional $10 or “breaking even”
1.Predetermined percentage loss
(e.g., ten percent)
2. Stop-loss order
3. Funding an emergency
Suppose that investors trade to take advantage of the tax option and not subject to the disposition effect. Then we find there are few gains realized when they are short-term for 2 reasons.
1.Tax rate is high on such gains
2.Transaction costs involved in frequent trading