Question 1

____________ may be responsible for the prevalence of active versus passive investments management.

Accepted Answer

A)  Forecasting errors 
B)  Overconfidence 
C)  Mental accounting 
D)  Conservatism 
E)  Regret avoidance 
A)  Forecasting errors 
B)  Overconfidence 
C)  Mental accounting 
D)  Conservatism 
E)  Regret avoidance

Question 2

Studies of equity carve-outs find __________, which __________ the EMH.

Accepted Answer

A)  strong support for the law of one price; supports 
B)  strong support for the law of one price; violates 
C)  evidence against the law of one price; violates 
D)  evidence against the law of one price; supports 
A)  strong support for the law of one price; supports 
B)  strong support for the law of one price; violates 
C)  evidence against the law of one price; violates 
D)  evidence against the law of one price; supports

Question 3

Studies of closed-end funds find __________, which __________ the EMH.

Accepted Answer

A)  prices at a premium to NAV; is consistent with 
B)  prices at a premium to NAV; is inconsistent with 
C)  prices at a discount to NAV; is consistent with 
D)  prices at a discount to NAV; is inconsistent with 
E)  prices at premiums and discounts to NAV; is inconsistent with 
A)  prices at a premium to NAV; is consistent with 
B)  prices at a premium to NAV; is inconsistent with 
C)  prices at a discount to NAV; is consistent with 
D)  prices at a discount to NAV; is inconsistent with 
E)  prices at premiums and discounts to NAV; is inconsistent with

Question 4

Errors in information processing can lead investors to misestimate

Accepted Answer

A)  true probabilities of possible events and associated rates of return. 
B)  occurrence of possible events. 
C)  only possible rates of return. 
D)  the effect of accounting manipulation. 
E)  fraud. 
A)  true probabilities of possible events and associated rates of return. 
B)  occurrence of possible events. 
C)  only possible rates of return. 
D)  the effect of accounting manipulation. 
E)  fraud.

Question 5

Barber and Odean (2001) report that women __________ men.

Accepted Answer

A)  earn higher returns than 
B)  earn lower returns than 
C)  earn about the same returns as 
D)  generate higher trading costs than 
A)  earn higher returns than 
B)  earn lower returns than 
C)  earn about the same returns as 
D)  generate higher trading costs than

Question 6

Some economists believe that the anomalies literature is consistent with investors'

Accepted Answer

A)  ability to always process information correctly, and therefore, they infer correct probability distributions about future rates of return; and given a probability distribution of returns, they always make consistent and optimal decisions. 
B)  inability to always process information correctly, and therefore, they infer incorrect probability distributions about future rates of return; and given a probability distribution of returns, they always make consistent and optimal decisions. 
C)  ability to always process information correctly, and therefore, they infer correct probability distributions about future rates of return; and given a probability distribution of returns, they often make inconsistent or suboptimal decisions. 
D)  inability to always process information correctly, and therefore, they infer incorrect probability distributions about future rates of return; and given a probability distribution of returns, they often make inconsistent or suboptimal decisions. 
A)  ability to always process information correctly, and therefore, they infer correct probability distributions about future rates of return; and given a probability distribution of returns, they always make consistent and optimal decisions. 
B)  inability to always process information correctly, and therefore, they infer incorrect probability distributions about future rates of return; and given a probability distribution of returns, they always make consistent and optimal decisions. 
C)  ability to always process information correctly, and therefore, they infer correct probability distributions about future rates of return; and given a probability distribution of returns, they often make inconsistent or suboptimal decisions. 
D)  inability to always process information correctly, and therefore, they infer incorrect probability distributions about future rates of return; and given a probability distribution of returns, they often make inconsistent or suboptimal decisions.

Question 7

____________ are good examples of the limits to arbitrage because they show that the law of one price is violated.I) Siamese twin companiesII) Unit trustsIII) Closed-end fundsIV) Open-end fundsV) Equity carve-outs

Accepted Answer

A)  I and II 
B)  I, II, and III 
C)  I, III, and V 
D)  IV and V 
E)  V 
A)  I and II 
B)  I, II, and III 
C)  I, III, and V 
D)  IV and V 
E)  V

Question 8

Conservatism implies that investors are too __________ in updating their beliefs in response to new evidence and that they initially __________ to news.

Accepted Answer

A)  quick; overreact 
B)  quick; underreact 
C)  slow; overreact 
D)  slow; underreact 
A)  quick; overreact 
B)  quick; underreact 
C)  slow; overreact 
D)  slow; underreact

Question 9

Kahneman and Tversky (1973) reported that __________ give too much weight to recent experience compared to prior beliefs when making forecasts.

Accepted Answer

A)  young men 
B)  young women 
C)  people 
D)  older men 
E)  older women 
A)  young men 
B)  young women 
C)  people 
D)  older men 
E)  older women

Question 10

The efficient-market hypothesis

Accepted Answer

A)  implies that security prices properly reflect information available to investors. 
B)  has little empirical validity. 
C)  implies that active traders will find it difficult to outperform a buy-and-hold strategy. 
D)  has little empirical validity and implies that active traders will find it difficult to outperform a buy-and-hold strategy. 
E)  implies that security prices properly reflect information available to investors and that active traders will find it difficult to outperform a buy-and-hold strategy. 
A)  implies that security prices properly reflect information available to investors. 
B)  has little empirical validity. 
C)  implies that active traders will find it difficult to outperform a buy-and-hold strategy. 
D)  has little empirical validity and implies that active traders will find it difficult to outperform a buy-and-hold strategy. 
E)  implies that security prices properly reflect information available to investors and that active traders will find it difficult to outperform a buy-and-hold strategy.

Question 11

____________ measures the extent to which a security has outperformed or underperformed either the market as a whole or its particular industry.

Accepted Answer

A)  Put-call ratio 
B)  Trin ratio 
C)  Breadth 
D)  Relative strength 
E)  All of the options are correct. 
A)  Put-call ratio 
B)  Trin ratio 
C)  Breadth 
D)  Relative strength 
E)  All of the options are correct.

Question 12

Forecasting errors are potentially important because

Accepted Answer

A)  research suggests that people underweight recent information. 
B)  research suggests that people overweight recent information. 
C)  research suggests that people correctly weight recent information. 
D)  research suggests that people either underweight recent information or overweight recent information depending on whether the information was good or bad. 
E)  None of the options are correct. 
A)  research suggests that people underweight recent information. 
B)  research suggests that people overweight recent information. 
C)  research suggests that people correctly weight recent information. 
D)  research suggests that people either underweight recent information or overweight recent information depending on whether the information was good or bad. 
E)  None of the options are correct.

Question 13

Barber and Odean (2001) report that men trade __________ frequently than women.

Accepted Answer

A)  less 
B)  less in down markets 
C)  more in up markets 
D)  more 
A)  less 
B)  less in down markets 
C)  more in up markets 
D)  more

Question 14

__________ effects can help explain momentum in stock prices.

Accepted Answer

A)  Conservatism 
B)  Regret avoidance 
C)  Prospect theory 
D)  Mental accounting 
E)  Model risk 
A)  Conservatism 
B)  Regret avoidance 
C)  Prospect theory 
D)  Mental accounting 
E)  Model risk

Question 15

The anomalies literature

Accepted Answer

A)  provides a conclusive rejection of market efficiency. 
B)  provides conclusive support of market efficiency. 
C)  suggests that several strategies would have provided superior returns. 
D)  provides a conclusive rejection of market efficiency and suggests that several strategies would have provided superior returns. 
E)  None of the options are correct. 
A)  provides a conclusive rejection of market efficiency. 
B)  provides conclusive support of market efficiency. 
C)  suggests that several strategies would have provided superior returns. 
D)  provides a conclusive rejection of market efficiency and suggests that several strategies would have provided superior returns. 
E)  None of the options are correct.

Question 16

If a person gives too much weight to recent information compared to prior beliefs, they would make ________ errors.

Accepted Answer

A)  framing 
B)  selection bias 
C)  overconfidence 
D)  conservatism 
E)  forecasting 
A)  framing 
B)  selection bias 
C)  overconfidence 
D)  conservatism 
E)  forecasting

Question 17

Studies of Siamese twin companies find __________, which __________ the EMH.

Accepted Answer

A)  correct relative pricing; supports 
B)  correct relative pricing; does not support 
C)  incorrect relative pricing; supports 
D)  incorrect relative pricing; does not support 
A)  correct relative pricing; supports 
B)  correct relative pricing; does not support 
C)  incorrect relative pricing; supports 
D)  incorrect relative pricing; does not support

Question 18

DeBondt and Thaler believe that high P/E result from investors'

Accepted Answer

A)  earnings expectations that are too extreme. 
B)  earnings expectations that are not extreme enough. 
C)  stock-price expectations that are too extreme. 
D)  stock-price expectations that are not extreme enough. 
A)  earnings expectations that are too extreme. 
B)  earnings expectations that are not extreme enough. 
C)  stock-price expectations that are too extreme. 
D)  stock-price expectations that are not extreme enough.

Question 19

An over reliance on patterns can be called _____________ bias.

Accepted Answer

A)  heuristic 
B)  overreaction 
C)  value-versus-growth 
D)  representativeness 
E)  intrinsic value 
A)  heuristic 
B)  overreaction 
C)  value-versus-growth 
D)  representativeness 
E)  intrinsic value

Question 20

Barber and Odean (2001) report that men __________ women.

Accepted Answer

A)  earn higher returns than 
B)  earn lower returns than 
C)  earn about the same returns as 
D)  generate lower trading costs than 
A)  earn higher returns than 
B)  earn lower returns than 
C)  earn about the same returns as 
D)  generate lower trading costs than

Exam 12: Behavioral Finance and Technical Analysis

____________ may be responsible for the prevalence of active versus passive investments management.

Studies of equity carve-outs find __________, which __________ the EMH.

Studies of closed-end funds find __________, which __________ the EMH.

Errors in information processing can lead investors to misestimate

Barber and Odean (2001) report that women __________ men.

Some economists believe that the anomalies literature is consistent with investors'

____________ are good examples of the limits to arbitrage because they show that the law of one price is violated.I) Siamese twin companiesII) Unit trustsIII) Closed-end fundsIV) Open-end fundsV) Equity carve-outs

Conservatism implies that investors are too __________ in updating their beliefs in response to new evidence and that they initially __________ to news.

Kahneman and Tversky (1973) reported that __________ give too much weight to recent experience compared to prior beliefs when making forecasts.

The efficient-market hypothesis

____________ measures the extent to which a security has outperformed or underperformed either the market as a whole or its particular industry.

Forecasting errors are potentially important because

Barber and Odean (2001) report that men trade __________ frequently than women.

__________ effects can help explain momentum in stock prices.

The anomalies literature

If a person gives too much weight to recent information compared to prior beliefs, they would make ________ errors.

Studies of Siamese twin companies find __________, which __________ the EMH.

DeBondt and Thaler believe that high P/E result from investors'

An over reliance on patterns can be called _____________ bias.

Barber and Odean (2001) report that men __________ women.

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Studies of equity carve-outs find , which the EMH.

Studies of closed-end funds find , which the EMH.

Conservatism implies that investors are too in updating their beliefs in response to new evidence and that they initially to news.

Studies of Siamese twin companies find , which the EMH.