Buying the Same Stock - Again: Pride and Regret Drive Investors’ Decisions

Wednesday, May 25, 2011

Running Time: 00:03:46

How likely are you to repurchase a stock you sold? Professor Terrance Odean, who studies behavioral finance, found that that trading patterns involving previously owned stock are driven by a desire to avoid or at least limit anticipated regret. In other words, investors are likely to repurchase a stock if the sale boosts feelings of satisfaction.
 
Odean and co-authors reviewed more than 700,000 stock purchases and found that investors are one-half to two-thirds more likely to 1) repurchase stocks previously sold for a gain rather than stocks they previously sold for a loss, 2) repurchase stocks that have lost rather than gained value following a prior sale, and 3) purchase additional shares of stocks that have lost rather than gained value since being purchased.

Categories:  Haas Faculty & Research