The disposition effect plays a very important role in explaining this stock momentum. |
There's nothing special about a stock price six months or a year ago. Investors want to make sure that the current price is high relative to what they paid for it. |
We found that it is a type of psychological bias on the part of many investors that seems to drive momentum. Investors tend to hold on to their losing stocks too long and sell their winners too quickly. This triggers momentum. |
We now have a better idea than ever before about what is driving stock price momentum. |