Exam 12: Asset Bubbles

Suppose in any period the dividend on a share takes one of four values: $0.00, $0.04, $0.14 or $0.30 with equal probability in each period and trades for 15 periods after which it becomes valueless. At the beginning of the 1^st period, the expected dividend from this share is:

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Question 1

Correct Answer:

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The familiar pattern of bubbles and crashes in markets for financial assets can be caused by a number of factors including (1) chasing speculative gains and (2) lack of common knowledge of the rationality of traders. Briefly explain what is meant by these two concepts.

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Question 2

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1) Chasing speculative gains refers to the behavior of investors who are driven by the desire to make quick profits by investing in assets that are experiencing rapid price increases. This behavior can lead to the formation of asset bubbles, where the prices of financial assets become detached from their underlying fundamental value. When the bubble eventually bursts, it can result in a sharp and sudden crash in asset prices.

2) Lack of common knowledge of the rationality of traders refers to the situation where market participants do not have a shared understanding of the factors driving asset prices. This can lead to a situation where traders make investment decisions based on incomplete or inaccurate information, leading to market inefficiencies and the potential for speculative bubbles to form. Additionally, if traders do not have a clear understanding of the rational behavior of other market participants, it can lead to herd behavior and the amplification of market movements.

Consider a share with a declining fundamental value that trades for 10 periods. Which of the following phenomena would be most consistent with prices tracking fundamental value?

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Question 3

Correct Answer:

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Which of the following statements about a share with a flat fundamental value is correct?

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Question 4

Suppose a share has a flat fundamental value of $7. Currently the share is trading at $17.50 per share. You enter into a contract with another trader that once the last trading period ends you will sell 100 shares to this other trader for $10.50 per share. But, by the last market period the share is trading at $13.50 per share. This implies that in this case:

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Question 5

A "double auction" is a market where:

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Question 6

Why might a researcher wish to study an asset with a flat fundamental value? Assuming a redemption value of P, a per period expected dividend of E, and a market interest rate of R, explain how you would set the redemption value of this asset at the end of the trading period to generate a flat fundamental value.

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Question 7

Suppose in any period a share dividend takes one of four values: $0.00, $0.08, $0.28 or $0.60 with equal probability. The asset trades for 15 periods and then become valueless. Period 9 has ended and Period 10 has just begun. There are a number of offers to sell that you could consider. Which of the following statements is true?

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Question 8

Martin Kocher and his colleagues find that groups consisting of a mixture of depleted and non-depleted self-control traders behave similar to groups of depleted self-control traders in terms of the pattern of bubbles and crashes. What do Kocher et al. suggest as a reason for this similarity in behaviour?

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Question 9

Which of the following statements about a share with a declining fundamental value is correct?

(Multiple Choice)

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Question 10

Why do Haruvy, Lahav and Noussair ask their participants to make predictions for asset prices not only for the next period but for all remaining periods? What is the implication for making these forecasts for future periods on the incidence of price peaks in those markets?

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Question 11

Suppose a share is trading for $25 in the current period. You borrow the current market value of 100 shares, i.e., $2500 from a broker. You will need to repay 100 shares to the broker after the last trading period.

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Question 12

Suppose a share is trading for $25 in the current period. You borrow the current market value of 100 shares, i.e., $2500 from a broker. You will need to repay 100 shares to the broker after the last trading period.

(Multiple Choice)

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Question 13

Suppose a share is trading for $25 in the current period. You enter into a contract with another trader that once the last trading period ends you will sell 100 shares to this other trader for $18 per share. You are expecting to make a profit from this contract. This implies that:

(Multiple Choice)

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Question 14

Which of the following is true of the results reported in the Kocher et al. study on self-control and asset bubbles?

(Multiple Choice)

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Question 15

A "call market" is one where:

(Multiple Choice)

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Question 16

In their 1988 study Smith et al. reported that asset prices lie above forecast prices during booms and below forecast prices during the slump. In their work, Haruvy, Lahav and Noussair suggest that this may be possibly due to the fact:

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Question 17

Suppose a share has a flat fundamental value of $7. Currently the share is trading at $17.50 per share. You enter into a contract with another trader that once the last trading period ends you will sell 100 shares to this other trader for $10.50 per share. You are anticipating making at least $250 profit.

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Question 18

If in any period the dividend on a share takes one of four values, $0.00, $0.08, $0.28 or $0.60 with equal probability then for a share that trades for 10 period and becomes value-less after that, the expected dividend is:

(Multiple Choice)

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Question 19

Which of the following statements about a share with a flat fundamental value is correct?

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Question 20

Showing 1 - 20 of 37

Suppose in any period the dividend on a share takes one of four values: $0.00, $0.04, $0.14 or $0.30 with equal probability in each period and trades for 15 periods after which it becomes valueless. At the beginning of the 1^st period, the expected dividend from this share is:

The familiar pattern of bubbles and crashes in markets for financial assets can be caused by a number of factors including (1) chasing speculative gains and (2) lack of common knowledge of the rationality of traders. Briefly explain what is meant by these two concepts.

Consider a share with a declining fundamental value that trades for 10 periods. Which of the following phenomena would be most consistent with prices tracking fundamental value?

Which of the following statements about a share with a flat fundamental value is correct?

A "double auction" is a market where:

Which of the following statements about a share with a declining fundamental value is correct?

Why do Haruvy, Lahav and Noussair ask their participants to make predictions for asset prices not only for the next period but for all remaining periods? What is the implication for making these forecasts for future periods on the incidence of price peaks in those markets?

Suppose a share is trading for $25 in the current period. You borrow the current market value of 100 shares, i.e., $2500 from a broker. You will need to repay 100 shares to the broker after the last trading period.

Suppose a share is trading for $25 in the current period. You borrow the current market value of 100 shares, i.e., $2500 from a broker. You will need to repay 100 shares to the broker after the last trading period.

Suppose a share is trading for $25 in the current period. You enter into a contract with another trader that once the last trading period ends you will sell 100 shares to this other trader for $18 per share. You are expecting to make a profit from this contract. This implies that:

Which of the following is true of the results reported in the Kocher et al. study on self-control and asset bubbles?

A "call market" is one where:

In their 1988 study Smith et al. reported that asset prices lie above forecast prices during booms and below forecast prices during the slump. In their work, Haruvy, Lahav and Noussair suggest that this may be possibly due to the fact:

If in any period the dividend on a share takes one of four values, $0.00, $0.08, $0.28 or $0.60 with equal probability then for a share that trades for 10 period and becomes value-less after that, the expected dividend is:

Which of the following statements about a share with a flat fundamental value is correct?

How We Decide

Experiments in Behavioural Economics

Gut Feelings and Effortful Thinking

Expected Utility Theory and Prospect Theory

Probabilistic Thinking

Thinking Strategically

Ultimatum Game and Market Implications

Trust Game and Market Implications

Social Dilemma Games

Coordination Problems

Behavioual Analysis of Markets

Filters

Exam 12: Asset Bubbles

Suppose in any period the dividend on a share takes one of four values: $0.00, $0.04, $0.14 or $0.30 with equal probability in each period and trades for 15 periods after which it becomes valueless. At the beginning of the 1st period, the expected dividend from this share is:

The familiar pattern of bubbles and crashes in markets for financial assets can be caused by a number of factors including (1) chasing speculative gains and (2) lack of common knowledge of the rationality of traders. Briefly explain what is meant by these two concepts.

Consider a share with a declining fundamental value that trades for 10 periods. Which of the following phenomena would be most consistent with prices tracking fundamental value?

Which of the following statements about a share with a flat fundamental value is correct?

A "double auction" is a market where:

Which of the following statements about a share with a declining fundamental value is correct?

Why do Haruvy, Lahav and Noussair ask their participants to make predictions for asset prices not only for the next period but for all remaining periods? What is the implication for making these forecasts for future periods on the incidence of price peaks in those markets?

Suppose a share is trading for $25 in the current period. You borrow the current market value of 100 shares, i.e., $2500 from a broker. You will need to repay 100 shares to the broker after the last trading period.

Suppose a share is trading for $25 in the current period. You borrow the current market value of 100 shares, i.e., $2500 from a broker. You will need to repay 100 shares to the broker after the last trading period.

Suppose a share is trading for $25 in the current period. You enter into a contract with another trader that once the last trading period ends you will sell 100 shares to this other trader for $18 per share. You are expecting to make a profit from this contract. This implies that:

Which of the following is true of the results reported in the Kocher et al. study on self-control and asset bubbles?

A "call market" is one where:

In their 1988 study Smith et al. reported that asset prices lie above forecast prices during booms and below forecast prices during the slump. In their work, Haruvy, Lahav and Noussair suggest that this may be possibly due to the fact:

If in any period the dividend on a share takes one of four values, $0.00, $0.08, $0.28 or $0.60 with equal probability then for a share that trades for 10 period and becomes value-less after that, the expected dividend is:

Which of the following statements about a share with a flat fundamental value is correct?

How We Decide

Experiments in Behavioural Economics

Gut Feelings and Effortful Thinking

Expected Utility Theory and Prospect Theory

Probabilistic Thinking

Thinking Strategically

Ultimatum Game and Market Implications

Trust Game and Market Implications

Social Dilemma Games

Coordination Problems

Behavioual Analysis of Markets

Filters

Suppose in any period the dividend on a share takes one of four values: $0.00, $0.04, $0.14 or $0.30 with equal probability in each period and trades for 15 periods after which it becomes valueless. At the beginning of the 1^st period, the expected dividend from this share is: