Integrating Losses and Separating Gains

Mental accounting refers to how investors frame gains and losses. Hedonic editing suggests that investors will be more likely to bundle losses by selling money-losers in groups (feeling the pain one time) and will sell stocks with gains individually (deriving pleasure each time).

Analyzing trading data from a large US discount brokerage house, Sonya Lim published in the September 2006 Journal of Business that investors do seem to integrate losses and segregate gains.

For more information, see all articles on: Active Management, Behavioral Finance, Investment Returns, Research

See also:
  • Average Gain, Average Loss, and the Gain to Loss Ratio
  • Accounting for Debt Retirement
  • Long-Term Return Reversals: Overreaction or Taxes?
  • The Disposition Effect
  • Behavioral Bias and Differential Treatment of Capital Gains Taxes
  • Technical Analysis Explained : The Successful Investor's Guide to Spotting Investment Trends and Turning Points

    The Intelligent Investor: The Classic Text on Value Investing

    Financial Statement Analysis: A Practitioner's Guide, 3rd Edition

    Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)

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