Chartered Investment Manager (CIM) Practice Exam · Question
Which behavioural finance concept describes the tendency for investors to hold onto losing investments too long and sell winning investments too soon?
Loss aversion describes people's tendency to prefer avoiding losses to acquiring equivalent gains. This often manifests in holding on to losing investments, hop
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Question: Which behavioural finance concept describes the tendency for investors to hold onto losing investments too long and sell winning investments too soon?
Answer options:
- Anchoring.
- Confirmation bias. ✅ Loss aversion.
- Herd mentality.
Correct answer: Loss aversion.
Explanation: Loss aversion describes people's tendency to prefer avoiding losses to acquiring equivalent gains. This often manifests in holding on to losing investments, hoping they will recover, and selling winners to 'lock in' gains, even if it's suboptimal.
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