Question 1

A trin ratio of less than 1.0 is considered as a

Accepted Answer

A)  bearish signal. 
B)  bullish signal. 
C)  bearish signal by some technical analysts and a bullish signal by other technical analysts. 
D)  bullish signal by some fundamentalists. 
E)  bearish signal by some technical analysts, a bullish signal by other technical analysts, and a bullish signal by some fundamentalists. 
A)  bearish signal. 
B)  bullish signal. 
C)  bearish signal by some technical analysts and a bullish signal by other technical analysts. 
D)  bullish signal by some fundamentalists. 
E)  bearish signal by some technical analysts, a bullish signal by other technical analysts, and a bullish signal by some fundamentalists. B

Question 2

Tests of market efficiency have focused on

Accepted Answer

A)  the mean variance efficiency of the selected market proxy. 
B)  strategies that would have provided superior risk adjusted returns. 
C)  results of actual investments of professional managers. 
D)  strategies that would have provided superior risk adjusted returns and results of actual investments of professional managers. 
E)  the mean variance efficiency of the selected market proxy and strategies that would have provided superior risk adjusted returns. 
A)  the mean variance efficiency of the selected market proxy. 
B)  strategies that would have provided superior risk adjusted returns. 
C)  results of actual investments of professional managers. 
D)  strategies that would have provided superior risk adjusted returns and results of actual investments of professional managers. 
E)  the mean variance efficiency of the selected market proxy and strategies that would have provided superior risk adjusted returns. D

Question 3

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 E

Question 4

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 5

Information processing errors consist of I) forecasting errors.
II) overconfidence.
III) conservatism.
IV) framing.

Accepted Answer

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

Question 6

____________ 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 7

The put/call ratio is computed as ____________, and higher values are considered ____________ signals.

Accepted Answer

A)  the number of outstanding put options divided by outstanding call options; bullish or bearish 
B)  the number of outstanding put options divided by outstanding call options; bullish 
C)  the number of outstanding put options divided by outstanding call options; bearish 
D)  the number of outstanding call options divided by outstanding put options; bullish 
E)  the number of outstanding call options divided by outstanding put options; bearish 
A)  the number of outstanding put options divided by outstanding call options; bullish or bearish 
B)  the number of outstanding put options divided by outstanding call options; bullish 
C)  the number of outstanding put options divided by outstanding call options; bearish 
D)  the number of outstanding call options divided by outstanding put options; bullish 
E)  the number of outstanding call options divided by outstanding put options; bearish

Question 8

Markets would be inefficient if irrational investors __________ and actions of arbitragers were __________.

Accepted Answer

A)  existed; unlimited 
B)  did not exist; unlimited 
C)  existed; limited 
D)  did not exist; limited 
A)  existed; unlimited 
B)  did not exist; unlimited 
C)  existed; limited 
D)  did not exist; limited

Question 9

____________ 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 10

The premise of behavioral finance is that

Accepted Answer

A)  conventional financial theory ignores how real people make decisions and that people make a difference. 
B)  conventional financial theory considers how emotional people make decisions, but the market is driven by rational utility maximizing investors. 
C)  conventional financial theory should ignore how the average person makes decisions because the market is driven by investors who are much more sophisticated than the average person. 
D)  conventional financial theory considers how emotional people make decisions, but the market is driven by rational utility maximizing investors and should ignore how the average person makes decisions because the market is driven by investors who are much more sophisticated than the average person. 
E)  None of the options are correct. 
A)  conventional financial theory ignores how real people make decisions and that people make a difference. 
B)  conventional financial theory considers how emotional people make decisions, but the market is driven by rational utility maximizing investors. 
C)  conventional financial theory should ignore how the average person makes decisions because the market is driven by investors who are much more sophisticated than the average person. 
D)  conventional financial theory considers how emotional people make decisions, but the market is driven by rational utility maximizing investors and should ignore how the average person makes decisions because the market is driven by investors who are much more sophisticated than the average person. 
E)  None of the options are correct.

Question 11

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 12

If information processing was perfect, many studies conclude that individuals would tend to make __________ decisions using that information due to __________.

Accepted Answer

A)  less than fully rational; behavioral biases 
B)  fully rational; behavioral biases 
C)  less than fully rational; fundamental risk 
D)  fully rational; fundamental risk 
E)  fully rational; utility maximization 
A)  less than fully rational; behavioral biases 
B)  fully rational; behavioral biases 
C)  less than fully rational; fundamental risk 
D)  fully rational; fundamental risk 
E)  fully rational; utility maximization

Question 13

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 14

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 15

The confidence index is computed from ____________, and higher values are considered ____________ signals.

Accepted Answer

A)  bond yields; bearish 
B)  odd lot trades; bearish 
C)  odd lot trades; bullish 
D)  put/call ratios; bullish 
E)  bond yields; bullish 
A)  bond yields; bearish 
B)  odd lot trades; bearish 
C)  odd lot trades; bullish 
D)  put/call ratios; bullish 
E)  bond yields; bullish

Question 16

The assumptions concerning the shape of utility functions of investors differ between conventional theory and prospect theory. Conventional theory assumes that utility functions are __________, whereas prospect theory assumes that utility functions are __________.

Accepted Answer

A)  concave and defined in terms of wealth; s shaped (convex to losses and concave to gains) and defined in terms of losses relative to current wealth 
B)  convex and defined in terms of losses relative to current wealth; s shaped (convex to losses and concave to gains) and defined in terms of losses relative to current wealth 
C)  s shaped (convex to losses and concave to gains) and defined in terms of losses relative to current wealth; concave and defined in terms of wealth 
D)  s shaped (convex to losses and concave to gains) and defined in terms of wealth; concave and defined in terms of losses relative to current wealth 
E)  convex and defined in terms of wealth; concave and defined in terms of gains relative to current wealth 
A)  concave and defined in terms of wealth; s shaped (convex to losses and concave to gains) and defined in terms of losses relative to current wealth 
B)  convex and defined in terms of losses relative to current wealth; s shaped (convex to losses and concave to gains) and defined in terms of losses relative to current wealth 
C)  s shaped (convex to losses and concave to gains) and defined in terms of losses relative to current wealth; concave and defined in terms of wealth 
D)  s shaped (convex to losses and concave to gains) and defined in terms of wealth; concave and defined in terms of losses relative to current wealth 
E)  convex and defined in terms of wealth; concave and defined in terms of gains relative to current wealth

Question 17

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 18

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 19

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 20

____________ is a measure of the extent to which a movement in the market index is reflected in the price movements of all stocks in the market.

Accepted Answer

A)  Put call ratio 
B)  Trin ratio 
C)  Breadth 
D)  Confidence index 
E)  All of the options are correct. 
A)  Put call ratio 
B)  Trin ratio 
C)  Breadth 
D)  Confidence index 
E)  All of the options are correct.

Exam 12: Behavioral Finance and Technical Analysis

A trin ratio of less than 1.0 is considered as a

Tests of market efficiency have focused on

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.

Information processing errors consist of I) forecasting errors. II) overconfidence. III) conservatism. IV) framing.

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

The put/call ratio is computed as ____________, and higher values are considered ____________ signals.

Markets would be inefficient if irrational investors __________ and actions of arbitragers were __________.

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

The premise of behavioral finance is that

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

If information processing was perfect, many studies conclude that individuals would tend to make __________ decisions using that information due to __________.

The efficient market hypothesis

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

The confidence index is computed from ____________, and higher values are considered ____________ signals.

The assumptions concerning the shape of utility functions of investors differ between conventional theory and prospect theory. Conventional theory assumes that utility functions are __________, whereas prospect theory assumes that utility functions are __________.

The anomalies literature

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

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

____________ is a measure of the extent to which a movement in the market index is reflected in the price movements of all stocks in the market.

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

Optimal Risky Portfolios

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 Siamese twin companies find , which the EMH.

The put/call ratio is computed as , and higher values are considered signals.

Markets would be inefficient if irrational investors and actions of arbitragers were .

If information processing was perfect, many studies conclude that individuals would tend to make decisions using that information due to .

Studies of equity carve outs find , which the EMH.

The confidence index is computed from , and higher values are considered signals.

The assumptions concerning the shape of utility functions of investors differ between conventional theory and prospect theory. Conventional theory assumes that utility functions are , whereas prospect theory assumes that utility functions are .