Chartered Investment Manager (CIM) Practice Exam · Question
A Canadian investor consistently holds onto losing investments hoping they will recover, and sells winning investments too early to 'lock in' gains. This behaviour is best described by which behavioural finance bias?
The disposition effect is the tendency of investors to hold onto losing stocks for too long and sell winning stocks too soon.
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Question: A Canadian investor consistently holds onto losing investments hoping they will recover, and sells winning investments too early to 'lock in' gains. This behaviour is best described by which behavioural finance bias?
Answer options:
- Confirmation bias.
- Herding. ✅ Disposition effect.
- Anchoring.
Correct answer: Disposition effect.
Explanation: The disposition effect is the tendency of investors to hold onto losing stocks for too long and sell winning stocks too soon.
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