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

    charting

    behavioral finance

    data mining

    fundamental analysis

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

    allocationally efficient; limitless arbitrage opportunities

    distorted; limited arbitrage opportunities

    distorted; allocational efficiency

    distorted; fundamental efficiency

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

    greedy; philanthropic

    irrational; rational

    philanthropic; greedy

    rational; irrational

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

    market psychology is inconsistent over time

    markets are not weak-form efficient

    there are no significant trading costs

    there are limits to arbitrage activity

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

    memory bias

    conservatism

    framing error

    representativeness bias

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

    representativeness bias

    framing error

    overconfidence

    memory bias

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

    Credit balances in brokerage accounts

    Short interest

    Relative strength

    A 200-day moving average

    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 _____.

    mental accounting

    overconfidence

    representativeness

    forecast errors

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

    buy bonds this period if you held stocks last period

    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

    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 _____.

    framing bias

    regret avoidance

    mental accounting

    loss aversion

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

    overweighting effect

    head-in-the-sand effect

    disposition effect

    prospector effect

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

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

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

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

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

    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?

    I only

    II only

    I, II, and III

    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?

    mental accounting

    overconfidence

    loss aversion

    herding behavior

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

    Calendar bias

    Overconfidence

    Loss aversion

    Mental accounting

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

    Excessive volatility

    Loss aversion

    Framing bias

    Mental accounting

    behavioral_finance investing