Make Hay While the Sun Shines: an Empirical Study of Maximum Price, Regret, and Trading Decisions
Julia Brettschneider,
Giovanni Burro,
Vicky Henderson
Abstract:Time-constant trading thresholds are optimal for a large class of preferences and asset price dynamics, including Expected Utility and the S-shaped reference-dependent utility of Prospect Theory. Such thresholds imply selling stocks at the maximum price since purchase. We use a large discount brokerage dataset containing US households’ trading records between 1991 and 1996 to document that in 31.6% of cases the stocks sold for a gain are sold on the day when the maximum since purchase occurs. However, not all … Show more
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