Exam 12: Behavioral Finance and Technical Analysis

If a moving average of the Dow Jones industrial average crosses the Dow Jones industrial average,

If investors believe technical analysis, its predictions may become self-fulfilling.

The technical approach suggests that future stock prices are forecasted by

Behavioral finance explains dramatic price changes in securities markets as a tendency for investors to "herd."

Even if technical analysis accurately predicted the direction of stock prices, commissions from frequent trading may consume any excess return the investor earns.

Which of the following is a fundamental principle of behavioral finance?

Behavioral finance suggests that

A point-and-figure chart such as an X-O chart tracks dividends and earnings.

Empirical evidence

If technical analysis cannot be demonstrated to produce higher returns, that is evidence supporting efficient markets.

Evidence supporting technical analysis is the lack of serial correlation between stock prices.

The Dogs of the Dow strategy

Behavioral finance suggests that investors may fail to sell losing positions since these investors feel the pain of regret.

Being familiar with a company often results in individuals buying stock (e.g., buying the stock in the company for which they work).