Consider the price paths of the following two stocks over six time? periods: Neither stock pays dividends. Assume you are an investor with the disposition effect and you bought at time 1 and right now it is time 3. Assume throughout this question that you do no trading? (other than what is? specified) in these stocks.
a. Which? stock(s) would you be inclined to? sell? Which would you be inclined to hold? onto?
b. How would your answer change if right now is time? 6?
c. What if you bought at time 3 instead of 1 and today is time? 6?
d. What if you bought at time 3 instead of 1 and today is time? 5?
1 2 3 4 5 6
Stock 1 $10 $12 $14 $12 $13 $16
Stock 2 $15 $11 $8 $16 $15 $18
a. Which? stock(s) would you be inclined to? sell? Which would you be inclined to hold? onto?
Stock 1_____ Stock 2____
b. How would your answer change if right now is time? 6?
Stock 1_____ Stock 2____
c. What if you bought at time 3 instead of 1 and today is time? 6?
Stock 1_____ Stock 2____
d. What if you bought at time 3 instead of 1 and today is time? 5?
Stock 1_____ Stock 2____