James has just purchased a stock for $50 a share, and in the first two days it rises to $60 a share. James decides that this 20% gain in 48 hours is a nice little windfall, and sells the stocks at that price. The fact that it next goes up to $80 a share in the following month leaves James wondering why he sold. This tendency to sell a stock too quickly after its value has increased is called the ____ effect.

Question

Quizplus · Accepted Answer

The disposition effect refers to the tendency of investors to sell assets that have increased in value too early while holding onto assets that have decreased in value for too long.

James Has Just Purchased a Stock for $50 a Share