What is it about?
We find that investors are about 50% more likely to repurchase a stock that has been sold a gain, compared to stocks sold at a loss. Also, their reference point (sale price) is a big trigger for engaging in repurchases.
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Why is it important?
Repurchase behaviour increases trading fees, which reduce returns. Investors are susceptible to only purchase previous gains. This shows that investors are selective and are not diversifying their stock market portfolios.
Perspectives
Why do investors do this? Emotions attached with past success are a likely explanation of why investors engage in this behaviour. Also, your reference point (sale price) will speed up this decision if the stock is priced below it, showing that reference points are important.
Dr Daniel Richards
York University
Read the Original
This page is a summary of: Buy and buy again: The impact of unique reference points on (re)purchase decisions, International Review of Finance, October 2022, Wiley, DOI: 10.1111/irfi.12399.
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