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1) A) Harry owns stock in Diva, Inc
1) A) Harry owns stock in Diva, Inc., a cyclical stock. Harry got the stock at $40. The stock price has fallen since then and now the price is at $30 (Feb 13th). On March 28th, news is released that the real GDP will be less than originally anticipated. According to behavioral finance theory related to regret, what is the most likely action taken by Harry?
a. Buy more Diva, Inc., stock on Feb 13th
b. Sell the Diva, Inc., stock on Feb 13th
c. Sell the Diva, Inc., stock on March 28th
B. An investor selling winning securities too soon and holding losing positions too long is an example of
a. overconfidence
b. representativeness
c. Loss aversion bias
Expert Solution
A. The most likely action which will be taken by the Harry is to sell the share when the information is released regarding the Gross Domestic Product being less than originally anticipated.
All the other statements are false.
Correct answer is option (C)Sell the Diva stock on March 28.
B. It is known as loss aversion bias in which the investor does not book the loss and he will be trying to sell his winners.
Correct answer is option (C) Loss aversion bias.
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