Question 1

An example of ________ is that it is not as painful to have purchased a blue-chip stock that decreases in value as it is to lose money on an unknown start-up firm.

Accepted Answer

A) mental accounting 
B) regret avoidance 
C) overconfidence 
D) conservatism

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.

Question 3

____________ are good examples of the limits to arbitrage because they show that the law of one price is violated. I) Siamese twin companies
II. Unit trusts
III. Closed-end funds
IV. Open-end funds
V. Equity carve-outs

Accepted Answer

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

Question 4

Barber and Odean (2001) report that men trade __________ frequently than women and the frequent trading leads to __________ returns.

Accepted Answer

A) less; superior 
B) less; inferior 
C) more; superior 
D) more; inferior

Question 5

__________ can lead investors to misestimate the true probabilities of possible events or associated rates of return.

Accepted Answer

A) Information processing errors 
B) Framing errors 
C) Mental accounting errors 
D) Regret avoidance

Question 6

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

Accepted Answer

A) less 
B) less in down markets 
C) more in up markets 
D) more Barber and Odean (2001) report that men trade more frequently than women.

Question 7

Conventional theories presume that investors ____________, and behavioral finance presumes that they ____________.

Accepted Answer

A) are irrational; are irrational 
B) are rational; may not be rational 
C) are rational; are rational 
D) may not be rational; may not be rational

Question 8

Single men trade far more often than women.This is due to greater ________ among men.

Accepted Answer

A) framing 
B) regret avoidance 
C) overconfidence 
D) conservatism

Question 9

Behavioral finance argues that

Accepted Answer

A) even if security prices are wrong, it may be difficult to exploit them. 
B) the failure to uncover successful trading rules or traders cannot be taken as proof of market efficiency. 
C) investors are rational. 
D) even if security prices are wrong, it may be difficult to exploit them and the failure to uncover successful trading rules or traders cannot be taken as proof of market efficiency.

Question 10

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

Question 11

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.

Question 12

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

Question 13

An example of ________ is that a person may reject an investment when it is posed in terms of risk surrounding potential gains, but may accept the same investment if it is posed in terms of risk surrounding potential losses.

Accepted Answer

A) framing 
B) regret avoidance 
C) overconfidence 
D) conservatism

Question 14

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

Question 15

____________ 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

Question 16

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.

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.

Question 18

Psychologists have found that people who make decisions that turn out badly blame themselves more when that decision was unconventional.The name for this phenomenon is

Accepted Answer

A) regret avoidance. 
B) framing. 
C) mental accounting. 
D) overconfidence.

Question 19

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

Accepted Answer

A) Forecasting errors 
B) Overconfidence 
C) Mental accounting 
D) Conservatism

Question 20

Suppose on August 27, there were 1,455 stocks that advanced on the NYSE and 1,553 that declined.The volume in advancing issues was 852,581, and the volume in declining issues was 1,058,312.The trin ratio for that day was ________, and technical analysts were likely to be ________.

Accepted Answer

A) 0.87; bullish 
B) 0.87; bearish 
C) 1.15; bullish 
D) 1.15; bearish

Exam 12: Behavioural Finance and Technical Analysis