Which of the following is the most reasonable explanation for the fact that investors are more likely to sell stocks that have appreciated in value than those that have depreciated in value?

Finance Nov 24, 2020

Which of the following is the most reasonable explanation for the fact that investors are more likely to sell stocks that have appreciated in value than those that have depreciated in value? . A. Investors tend not to pay attention to the performance of individual securities in their portfolio. B. Investors tend to avoid realizing losses. C. Investors tend to face social pressure when selling losing stocks. D. Investors tend to maximize returns.

Expert Solution

The disposition effect is an anomaly in which the investor will sell only those assets that have increased in value but retain the ones that have dropped in value. In this anomaly, the investor does not like to book losses in his portfolio. Hence, from the given options, the correct one is-

B. Investors tend to avoid realizing losses.

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