Behavioral Finance online mcq with answer practice set

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Behavioral Finance

1 / 20

Q: 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.

1. mental accounting

2. regret avoidance

3. overconfidence

4. conservatism

5. none of the above

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Q: 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.

1. framing

2. regret avoidance

3. overconfidence

4. conservatism

5. none of the above

3 / 20

Q: 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

1. regret avoidance

2. framing

3. mental accounting

4. overconfidence

5. obnoxicity

4 / 20

Q: 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

1. overconfidence

2. framing

3. regret avoidance?

4. sample neglect

5. all of the above

5 / 20

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

1. framing

2. regret avoidance

3. overconfidence

4. Conservatism

5. none of the above

6 / 20

Q: DeBondt and Thaler believe that high P/E result from investors

1. earnings expectations that are too extreme

2. earnings expectations that are not extreme enough

3. stock price expectations that are too extreme

4. stock price expectations that are not extreme enough

5. none of the above

7 / 20

Q: Some economists believe that the anomalies literature is consistent with investors...and...

1. ability to always process information correctly and therefore they infer correct probability distributions about future rates of return; given a probability distribution of returns, they always make consistent and optimal decisions

2. inability to always process information correctly and therefore they infer incorrect probability distributions about future rates of return; given a probability distribution of returns, they always make consistent and optimal decisions

3. ability to always process information correctly and therefore they infer correct probability distributions about future rates of return; given a probability distribution of returns, they often make inconsistent or suboptimal decisions

4. inability to always process information correctly and therefore they infer incorrect probability distributions about future rates of return; given a probability distribution of returns, they often make inconsistent or suboptimal decisions

5. none of the above

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Q: The premise of behavioral finance is that

1. conventional financial theory ignores how real people make decisions and that people make a difference

2. conventional financial theory considers how emotional people make decisions but the market is driven by rational utility maximizing investors

3. conventional financial theory should ignore how the average person makes decisions because the market is driven by investors that are much more sophisticated than the average person

4. B and C

5. none of the above

9 / 20

Q: Which of the following indexes of economic indicators are leading indicators:
a. Average weekly hours of production workers
b. Employees on non-agricultural payrolls
c. Personal income less transfer payments
d. Manufacturer's new orders (consumer goods and materials industries)

1. Only b) and c)

2. Only a) and d)

10 / 20

Q: Assume the U.S. government was to decide to increase the budget deficit. This action will most likely cause...to increase.

1. interest rates

2. government borrowing

3. unemployment

4. both A and B

5. none of the above

11 / 20

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

1. Forecasting errors

2. Overconfidence

3. Mental accounting

4. Conservatism

5. Regret avoidance

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Q: Circle all true statements. According to the behavioral finance view of the financial market:

1. Investors sentiment may move stocks prices away from the fundamental values

2. Arbitrage forces cannot always correct the mis-valuations generated by investors sentiment

3. Arbitrage forces can never correct the mis-valuations generated by investors sentiment

4. Prices are not likely to be more inefficient for stocks with higher arbitrage costs

13 / 20

Q: An investor will take as large a position as possible when an equilibrium price relationship is violated. This is an example of...

1. A dominance argument

2. The mean-variance efficiency frontier

3. A risk-free arbitrage

4. The capital asset pricing model

5. None of the above

14 / 20

Q: Assume that a company is announcing an unexpectedly large dividend to its shareholders. In an efficient market without information leakage, one might expect:

1. An abnormal price change at the announcement

2. An abnormal price change before the announcement

3. An abnormal price change after the announcement

4. No abnormal price change before or after the announcement

15 / 20

Q: If all securities are fairly priced (relative to the intrinsic, or true, value) an arbitrage opportunity...exist

1. Must

2. Might

3. Must not

4. Non of the above

16 / 20

Q: The Arbitrage Pricing Theory (APT) differs from the single-factor Capital Asset Pricing Model (CAPM) because the APT:

1. Place more emphasis on market risk

2. Minimize the importance of diversification

3. Recognize multiple unsystematic risk factors

4. Recognize multiple systematic risk factors

17 / 20

Q: The anomalies literature...

1. provides a conclusive rejection of market efficiency

2. provides a conclusive support of market efficiency

3. suggests that several strategies would have provided superior returns

4. A and C

5. none of the above

18 / 20

Q: The efficient market hypothesis...

1. implies that security prices properly reflect information available to investors

2. has little empirical validity

3. implies that active traders will find it difficult to outperform a buy-and-hold strategy

4. B and C

5. A and C

19 / 20

Q: ...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.

1. put-call ratio

2. trin ratio

3. Breadth

4. confidence index

5. all of the above

20 / 20

Q: In regard to moving averages, it is considered to be a...signal when market price breaks through the moving average from...

1. bearish; below

2. bullish: below

3. bearish; above

4. bullish above

5. B and C

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FAQ Behavioral Finance exam quiz

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Behavioral Finance online mcq with answer practice set

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