Exam 8: The Efficient Market Hypothesis and Behavioral Finance

Evidence suggests that there may be ________ momentum and ________ reversal patterns in share price behaviour.

The tendency of investors to hold on to losing investments is called the ________.

An investor needs cash to pay some bills. He is willing to use his dividend income to pay the bills but he will not sell any shares to do so. He is engaging in ________.

The tendency of poorly performing shares and well performing shares in one period to continue their performance into the next period is called the ________.

If investors overweight recent performance in forecasting the future they are exhibiting ________.

Someone who invests in the Vanguard Index 500 mutual fund could most accurately be described as using what approach?

On day 1, the share price of Ford was $81 and the automotive share index was 324. On day 2, the share price of Ford was $85 and the automotive share index was 335. Consider the ratio of Ford to the automotive share index at day 1 and day 2. Ford is ________ the automotive industry and technical analysts who follow relative strength would advise ________ the share.

Which of the following would violate the efficient market hypothesis?

Which of the following statements is/are correct?

Problems with behavioural finance include: I. the behaviouralists tell us nothing about how to exploit any irrationality II. the implications of behavioural patterns are inconsistent from case to case, sometimes suggesting overreaction, sometimes underreaction III. like technical trading rules, behaviouralists can always find some pattern in past data that supports a behaviouralist trait

A possible limit on arbitrage activity that may allow behavioural biases to persist is ________.

The broadest information set is included in the

Models of financial markets that emphasize psychological factors affecting investor behaviour are called ________.

Conventional finance theory assumes investors are ________ and behavioural finance assumes investors are ________.

Which of the following beliefs would not preclude charting as a method of portfolio management?

The ________ effect may explain much of the small firm anomaly. I. January effect II. neglected effect III. liquidity effect

If investors are too slow to update their beliefs about a share's future performance when new evidence arises they are exhibiting ________.

The tendency when the ________ performing shares in one period are the best performers in the next and the current ________ performers are lagging the market later is called the reversal effect.

You believe that you can earn 2% more on your portfolio if you engage in full time share research. However, the additional trading costs and tax liability from active management will cost you about 0.5%. You have a $800 000 share portfolio. What is the most you can afford to spend on your research?

The only way for behavioural patterns to persist in prices is if ________.