Chapter 12 Behavioral Finance and Technical Analysis
TRUE/FALSE
produces higher returns.
select investment data that confirms a preconceived
position.
to sell losing positions since these investors feel the
pain of regret.
individuals buying stock (e.g., buying the stock in the
company for which they work).
should lead to better investment decisions.
securities markets as a tendency for investors to “herd.”
investors and hence are not overconfident.
investors lack the ability to adapt and continue to repeat
mistakes.
basis for making investment decisions.
and suggests that patterns of securities prices repeat.
T 11. The Dow Theory considers price movements in the Dow
Jones industrial and transportation averages.
analysts are suggesting are “contrarians.”
dividends and earnings.
price will fall.
blunt further price increases.
price of a stock, that suggests the stock’s price will
stagnate.
a price increase on large volume since fewer investors
bought the stock.
serial correlation between stock prices.
predictions may become self–fulfilling.
lowest dividend yields of the Dow stocks.
stock with the lowest prices.
direction of stock prices, commissions from frequent
trading may consume any excess return the investor earns.
that level, the implication is avoid the stock.
produce higher returns, that is evidence supporting
efficient markets.
MULTIPLE CHOICE
a. investors are not informed
b. individuals make rational investment decisions
c. investors may be subject to bias which leads to
excessive buying or selling of stocks
d. emotion plays only a minor role in security
selection
behavior finance?
a. the use of P/E ratios
b. the tendency to avoid acknowledging investment
errors
c. selling stocks at a loss for tax purposes
d. constructing a diversified portfolio
investments decisions?
1. the pain of regret
2. following the crowd or “herding”
3. selective memory
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. all of the above
prices are forecasted by
a. past stock prices
b. financial ratios
c. accounting statements
d. monetary policy
analysis?
a. moving averages
b. bar graphs
c. point–and–figure charts
d. P/E ratios
average crosses the Dow Jones industrial average,
a. the direction of security prices has changed
b. stock prices will stabilize
c. stock prices will go through a period of
fluctuation
d. the investor should take profits
a. stock prices changed dramatically
b. stock prices rose
c. the daily price change was small
d. an investor should sell short
uses
a. the difference in yields on stocks and bonds
b. the difference in yields between high and low
quality stocks
c. the difference in a short–term moving average and
a longer term moving average
d. the difference in the number of shares sold short
and the number purchased
a. forecasts the direction of Dow Jones averages
b. suggests buying the Dow stocks with the highest
dividend yields
c. outperforms the S&P 500
d. suggests buying the lowest priced Dow stocks
a. does not support efficient markets
b. does not support the use of technical analysis
c. cannot be applied to technical analysis
d. only supports head–and–figure charts