Chapter 12 Behavioral Finance and Technical Analysis Answer Key
Multiple Choice Questions
1.
Conventional theories presume that investors ____________, and behavioral finance
presumes that they ____________.
2.
The premise of behavioral finance is that
3.
Some economists believe that the anomalies literature is consistent with investors’
4.
Information processing errors consist of
I) forecasting errors.
II) overconfidence.
III) conservatism.
IV) framing.
5.
Forecasting errors are potentially important because
6.
DeBondt and Thaler believe that high P/E result from investors’
7.
If a person gives too much weight to recent information compared to prior beliefs, they
would make ________ errors.
8.
Single men trade far more often than women. This is due to greater ________ among men.
9.
____________ may be responsible for the prevalence of active versus passive investments
management.
10.
Barber and Odean (2000) ranked portfolios by turnover and report that the difference in
return between the highest and lowest turnover portfolios is 7% per year. They attribute
this to
11.
________ bias means that investors are too slow in updating their beliefs in response to
evidence.
12.
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
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.
14.
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.
15.
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.
16.
Arbitrageurs may be unable to exploit behavioral biases due to
I) fundamental risk.
II) implementation costs.
III) model risk.
IV) conservatism.
V) regret avoidance.
17.
____________ 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
18.
A trin ratio of less than 1.0 is considered as a
19.
On August 27, 2012, 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 ________.
20.
In regard to moving averages, it is considered to be a ____________ signal when market
price breaks through the moving average from ____________.
21.
Two popular moving average periods are
22.
____________ 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.
23.
The confidence index is computed from ____________, and higher values are considered
____________ signals.
24.
The put/call ratio is computed as ____________, and higher values are considered
____________ signals.
25.
The efficient market hypothesis