D

Glossary · PSX term

Disposition effect.

The disposition effect is the habit of selling winners too soon and holding losers too long.

Definition

It stems from loss aversion and the urge to feel right, leading investors to lock in small gains while clinging to losing positions. This can hurt returns by cutting winners and nursing losers.

Worked example

Selling a stock up 10% but refusing to sell one down 30% shows the disposition effect.

Related on PSX Clarity

Behavioral bias

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