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EMAC 2022 Annual

A Dark Side of Hope: Understanding Why Investors Cling onto Losing Stocks

Published: May 24, 2022


Siria Xiyueyao Luo, Vrije Universiteit Amsterdam; Femke van Horen, Vrije Universiteit Amsterdam; Kobe Millet, Vrije Universiteit Amsterdam; Marcel Zeelenberg, Vrije Universiteit Amsterdam and Tilburg University


Investors often keep losing stocks too long, despite this being irrational. This phenomenon is part of the disposition effect (“ride losers too long, and sell winners too soon”). The current research examines the role of hope in explaining why people ride losers too long. Three correlational studies (1A-C) find that people’s trait and state hope positively correlate with their inclination to keep losing stocks. Two further experiments reveal that people are inclined to hold onto losing (vs. not-losing) stocks because of their specific hope to break even, and not because of their general hope to make a profit (Studies 2 & 3). Study 3 also suggests a potential intervention to the tendency to keep losing stocks by reducing investors’ hope ex ante. The findings add to the literature of the disposition effect by providing empirical evidence for the role of hope. They also add to the literature of hope by showing its role in a negative financial situation and thus show a “dark side” of it.