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

Arbitrageurs may be unable to exploit behavioral biases due to I) fundamental risk.
II. implementation costs.
III. model risk.
IV. conservatism.
V. regret avoidance.

Accepted Answer

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

Question 3

The law of one price posits that ability to arbitrage would force prices of identical goods to trade at equal prices.However, empirical evidence suggests that __________ are often mispriced.

Accepted Answer

A) Siamese twin companies 
B) equity carve-outs 
C) closed-end funds 
D) Siamese twin companies and closed-end funds 
E) All of the options

Question 4

____________ 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 
E) V

Question 5

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 6

Statman (1977) argues that ________ is consistent with some investors' irrational preference for stocks with high cash dividends and with a tendency to hold losing positions too long.

Accepted Answer

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

Question 7

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

Accepted Answer

A) earn higher returns than 
B) earn lower returns than 
C) earn about the same returns as 
D) generate lower trading costs than

Question 8

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

Question 9

DeBondt and Thaler (1990) argue that the P/E effect can be explained by

Accepted Answer

A) forecasting errors. 
B) earnings expectations that are too extreme. 
C) earnings expectations that are not extreme enough. 
D) regret avoidance. 
E) forecasting errors and earnings expectations that are too extreme.

Question 10

Errors in information processing can lead investors to misestimate

Accepted Answer

A) true probabilities of possible events and associated rates of return. 
B) occurrence of possible events. 
C) only possible rates of return. 
D) the effect of accounting manipulation. 
E) fraud.

Question 11

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 12

Behavioral finance posits that investors possess information processing errors.Discuss the importance of information processing errors, then list and explain the four information processing errors discussed in the text.

Accepted Answer

The answer of Behavioral finance posits that investors possess information...

Question 13

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 bullish signal by some fundamentalists.

Question 14

____________ 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

Exam 12: Behavioral Finance and Technical Analysis