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Flashcards in this deck (16)
  • Models of financial markets that emphasize psychological factors affecting investor behavior are called _____.

    behavioral finance

    charting

    data mining

    fundamental analysis

    finance behavioral
  • Behavioralists point out that even if market prices are _, there may be ___.

    distorted; limited arbitrage opportunities

    distorted; fundamental efficiency

    allocationally efficient; limitless arbitrage opportunities

    distorted; allocational efficiency

    finance markets
  • Conventional finance theory assumes investors are _, and behavioral finance assumes investors are ___.

    philanthropic; greedy

    greedy; philanthropic

    rational; irrational

    irrational; rational

    finance theory
  • The only way for behavioral patterns to persist in prices is if _____.

    there are no significant trading costs

    markets are not weak-form efficient

    there are limits to arbitrage activity

    market psychology is inconsistent over time

    finance behavioral
  • If investors are too slow to update their beliefs about a stock's future performance when new evidence arises, they are exhibiting _____.

    conservatism

    framing error

    memory bias

    representativeness bias

    finance behavioral
  • If investors overweight recent performance in forecasting the future, they are exhibiting _____.

    overconfidence

    representativeness bias

    framing error

    memory bias

    finance behavioral
  • Which of the following is considered a sentiment indicator?

    Credit balances in brokerage accounts

    A 200-day moving average

    Relative strength

    Short interest

    finance indicators
  • An investor holds a very conservative portfolio invested for retirement, but she takes some extra cash she earned from her year-end bonus and buys gold futures. She appears to be engaging in _____.

    overconfidence

    forecast errors

    representativeness

    mental accounting

    finance behavioral
  • If you believed in the reversal effect, you should _____.

    buy stocks this period that performed poorly last period

    do nothing if you held the stock last period

    buy stocks this period that performed well last period

    buy bonds this period if you held stocks last period

    finance trading
  • If the utility you derive from your next dollar of wealth increases by less than a loss of a dollar reduces it, you are exhibiting _____.

    mental accounting

    loss aversion

    regret avoidance

    framing bias

    finance psychology
  • The tendency of investors to hold on to losing investments is called the _____.

    prospector effect

    overweighting effect

    head-in-the-sand effect

    disposition effect

    finance behavioral
  • Which one of the following best describes fundamental risk?

    A stock is trading in two different markets at two different prices.

    A stock is overpriced, but your fund does not allow you to engage in short sales.

    Your models indicate a stock is mispriced, but you are not sure if this is a real profit opportunity or a model input error.

    You buy a stock that you believe is underpriced, and the underpricing persists for a long time, hurting your short-term results.

    finance risk
  • Problems with behavioral finance include: I. The behavioralists tell us nothing about how to exploit any irrationality. II. The implications of behavioral patterns are inconsistent from case to case, sometimes suggesting overreaction, sometimes underreaction. III. As with technical trading rules, behavioralists can always find some pattern in past data that supports a behavioralist trait. Which of the following is correct?

    II only

    I, II, and III

    I only

    I and III only

    finance behavioral
  • Investors gravitate toward the latest hot stock even though it has never paid a dividend. Even though net income is projected to fall over the current and next several years, the price of the stock continues to rise. What behavioral concept does this illustrate?

    overconfidence

    mental accounting

    herding behavior

    loss aversion

    finance behavioral
  • What behavioral concept may explain the price pattern?

    Mental accounting

    Calendar bias

    Overconfidence

    Loss aversion

    behavioral_finance psychology
  • What prevents the investor from taking out a loan to invest in the index fund?

    Mental accounting

    Framing bias

    Excessive volatility

    Loss aversion

    behavioral_finance investing