Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Advanced Investment Strategies (AIS) > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

What does behavioural finance macro (BFMA) examine?

A

The irrational behaviours of the overall market.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What does Behavioural finance micro (BFMI) examine?

A

The irrational behaviours of the individual investors.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define:
Perfect rationality
Perfect self-interest
Perfect information

A

In other words, investors are always rational.
In other words, investors always act in their own best interest.
In other words, investors have all the information available and it is accurate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Define:
Standard finance
Behavioural finance

A

Focuses on how investors show behave.
Studies how investors do behave and why.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What anomalies contradict the efficient market hypothesis?

A
  1. Fundamental anomaly
  2. Technical anomaly
  3. Calendar anomaly
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are some ways to measuring the success of a client relationship?

A
  1. The advisor understands what the client’s goals are.
  2. The advisor uses a consistent approach.
  3. The client’s expectations are met.
  4. Both parties benefit from the relationship.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are two main expectations that the client has of the advisor?

A
  1. The advisor understands his or her objectives.
  2. Returns are consistent with objectives (and risk tolerance).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is framing bias?

A

The way a question is framed can influence how a question is answered.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is another word for biases?
What can biases be?

A

Heuristics
Cognitive or emotional

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Define:
*Cognitive bias
~ Anchoring bias
*Emotional bias
*Availability bias

A

*Can be defined as processing or memory errors common to all human beings. Also referred to as blind spots.
~ Most common among cognitive. Client’s sometimes get anchored to the price of a stock and hold onto it preventing them from making important investment decisions.
*Stem from intuition or impulse reactions as opposed to conscious calculations.
*Allows people to estimate the likelihood of an outcome based on how prevalent that outcome appears to be in their lives.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the biases under emotional?

A

Optimism
Endowment
Loss aversion
Lack of self-control
Regret aversion
Status quo

Memory aid: Gambler Joe is emotional. His optimism and lack of self-control caused him to lose his endowment. He regrets the loss and wishes he kept the status quo.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the biases under congnitive?

A

Over-confidence
Anchoring and adjusting
Self-attribution (self-serving bias)
Conservatism
Mental accounting
Hindsight
Framing
Representativeness
Availability
Illusion of control
Ambiguity aversion
Confirmation
Recency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the biases that men and women are typically more susceptible to?

A

Men
Overconfidence (cognitive)
Availability (cognitive)
Loss aversion (emotional)

Women
Endowment (emotional)
Status quo (emotional)
Regret aversion (emotional)
Representativeness (cognitive)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the three investor personality dimensions?

A
  1. Idealist vs Pragmatist (I vs P)
  2. Framer vs Integrator (F vs N)
  3. Reflector vs Realist (T vs R)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How many possible investor personality types can there be?

A

Eight

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Define Idealist vs Pragmatist:

A
  1. Idealists overestimate their investing abilities.
  2. Pragmatists have a realistic grasp of their investing skills and limiations.
17
Q

Define Framer vs Integrator:

A
  1. Framers evaluate investments separately without considering how they would fit into their overall portfolio.
  2. Integrators understand the correlation between various investments and keep that in mind when constructing their portfolio.
18
Q

Define Reflector vs Realist:

A
  1. Reflectors have a difficulty living with the consequences of their actions and as such justify or rationalize their behaviour.
  2. Realists have an easier time coming to terms with the consequences of their own actions
19
Q

Emotional Bias

Investors who believe they are smarter than they actually are or have better information than they actually do?

A

Overconfidence

20
Q

Emotional Bias

Developing an internal system of classifying object and thoughts and when confronted with a new circumstance that may not fit their current categories, they rely on a best-fit process, which forms the basis of understanding the new circumstance?

A

Representativeness

21
Q

Emotional Bias

If a person is asked to provide an estimate on something he or she knows little about and is presented with an initial default number, his or her estimate is likely to be close to that number?

A

Anchoring and adjustment

22
Q

Emotional Bias

Allows people to estimate the likelihood of an outcome based on how prevalent that outcome appears to be in their lives?

A

Availability

23
Q

Is the tendency of individuals to attribute successes to their skills and failures to outside influences or bad luck?

A

Emotional Bias

Self-attribution (also known as self-serving bias)

24
Q

Is the tendency for individuals to think they can control things when they cannot?

A

Illusion of control

25
Q

Is a bias whereby people stick to a prior viewpoint and decline to refuse to acknowledge new information that could change their view?

A

Conservatism

26
Q

People shy away from an investment when the odds of various outcomes are difficult to estimate?

A

Ambiguity aversion

27
Q

Is the tendency of people grouping assets into ‘non-fungible mental accounts’

A

Mental accounting

28
Q

Occurs when people emphasize things that support their belief?

A

Confirmation

29
Q

Is a belief that an event that has already occurred was predictable, even though one didn’t predict it beforehand?

A

Hindsight

30
Q

Causes people to place a greater emphasis on what happened recently than what occurred in the past?

A

Recency

31
Q

The tendency to respond to situations differently based on how the choice is presented?

A

Framing

32
Q

This occurs when someone is so afraid of making a bad decision, they make no decision at all?

A

Emotional Bias - Loss Aversion

Advanced Investment Strategies (AIS) (14 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions