The lockin effect

Question

The lock­in effect

Quizplus · Accepted Answer

The lock-in effect refers to investors holding onto their shares for longer periods, which reduces the volume of stocks being traded in the market. This can lead to less efficient pricing, as there may be less information being incorporated into stock prices. Lower tax rates may reduce the lock-in effect by providing investors with less of an incentive to hold onto their shares for tax reasons. However, it does not necessarily mean that stock prices will continue to rise for prolonged periods (option D) or that prices will be efficiently priced (option A).

The Lock­in Effect

The Lockin Effect