Allgemeindes

Question 1

Neumann und Morgenstern Axioms

Answer 1

• Completeness
• Transitivity
• Independence
• Continuity

Question 2

Problems PT

Answer 2

• PT does not always satisfy stochastic dominance

- It is not easy to extend it to prospects with large number of outcomes

Question 3

Similarities and differences to standard CTP with SP/A

Answer 3

1. Medium probabilities in gains:
   v is still concav, so we get mild risk-averion
2. Medium probabilities in losses:
   v has a jump at zero, so people tend to be risk-seeing in losses, but if there are only losses possible, they are risk-averse
3. Small probabilities in losses and gains:
   behavior similar to CPT: risk-averse behavior in losses and risk-seeking behavior in gains arises

Question 4

Money Illusion

Answer 4

Money Illusion means that people behave differently when the same objective situation is represented in nominal terms rather than in real terms. Is a variant of framing effect

Question 5

Equity premium puzzle

Answer 5

• Stocks 7% and treasury bills 1%

- Aktien sind einfach nicht riskant genug, um die hohe Equity Risk Premium zu erklären.

Question 6

Myopic loss averion (One solution of Equity premium puzzle)

Answer 6

1. We first determine the evaluation period which makes the investor indifferent between holding all their assets in stocks or bonds.
2. Then we use the evaluation period calculated in the first step and see what combination of stocks and bonds maximize the prospect utility.
   - > Myopic means in finance: Looking at a short time hotizone

Question 7

Factors that are effect happiness

Answer 7

- Domographic and personal factors:
age, gender, nationality, education
- Economic factors
unemployment, income, inflation
- Political factors
freedom, participation

Question 8

Factors that are effect happiness and are studied

Answer 8

• Unemployment (stong factor of unhappiness)
• Income (poorer people tend to be unhappier)
• Income differences (determines their happiness much more than the absolute income)
• Inflation (high inflation makes people unhappy)
• Democracy (increas happiness)

Question 9

Cloes-end fund puzzle

Answer 9

• A fund where the stock composition is fixed
• Starts out at a premium of almost 10%
• After 120 days the average discount is ofer 10 %
• NAV is not in line with price

Question 10

Cloes-end fund puzzle explanation

Answer 10

• agent costs
• Tax liabilities
• illiquidity of assets

Question 11

Sentiment

Answer 11

Sentiment a belief about future cash flows and investment risks that is not justified by the facts at hand-
When sentiment is high, subsequent market return are low. When sentiment is high, the average future returns of speculative stocks are on average lower than the returns of low sentiment.

Question 12

Sunshine

Answer 12

sunlight effects mood, which influence the investors evaluation.
Sunshine is strongly significant correlated with stock returns, but rain are not.

Question 13

Daytime (winterdepression)

Answer 13

Effects many people during the seosons of relatively fewer hours of daylight.
Finding: A SAD effect in seasonal cycle of stock returns

Question 14

Media Coverage

Answer 14

• High leverl of media pessimism robustly predict downward pressure on market prices, followed by a reversion to fundamentals.
• Usually high or low media pessimism forecast high trading volume
• low market returns lead to high media pessimism

Question 15

Aviation Disaster

Answer 15

• Avioation disaster negatively affect stock prices for a short period of a few days

Question 16

Momentum

Answer 16

Trading strategies that buys post winners and sell past losers realize significant abnormal returns.

Question 17

Behavioral explanation

Answer 17

Evidence of Underreaction

Evidence of overreaction

Question 18

The emotional investor

Answer 18

• Does not pursue a strategy
• Forms adaptive expectations
• Overestimates his risk tolerance
• Wasted a lot of money

Question 19

Behavioral mistakes

Answer 19

• Anchoring Effects:

Lead to conservatism

Question 20

Anchoring Effects

Answer 20

Anchoring effect ist ein Begriff aus der Kognitionspsychologie für die Tatsache, dass Menschen bei bewusst gewählten Zahlenwerten von momentan vorhandenen Umgebungsinformationen beeinflusst werden, ohne dass ihnen dieser Einfluss bewusst wird. Die Umgebungsinformationen haben Einfluss selbst dann, wenn sie für die Entscheidung eigentlich irrelevant sind. Es handelt sich also um eine Urteilsheuristik, bei der sich das Urteil an einem willkürlichen „Anker“ orientiert.

Question 21

Endowment effect

Answer 21

Wahrgenommener Wert eines Gutes ist höher, wenn man es besitzt. Besitztumseffekt