Suppose investors in the stock market are particularly prone to the disposition effect: they tend to sell their winners promptly while holding on to losers hoping for a recovery. What should a rational investor do to take advantage of this systematic mistake? Hold the market portfolio Hold a combination of the market portfolio and the risk-free asset calibrated to an appropriate risk and return Buy stocks that have recently appreciated and sell stocks that have recently depreciated without worrying about valuations Complete independent research and ignore past prices which cannot contain information