Chapter 9

Question 1

Behavioral Finance

Answer 1

Models of financial markets that emphasize potential implications of psychological factors affecting investor behavior.

Question 2

Breadth

Answer 2

The extent to which movements in broad market indexes are reflected widely in movements of individual stock prices.

Question 3

Confidence Index

Answer 3

Ratio of the yield of top-rated corporate bonds to the yield on intermediate-grade bonds.

Question 4

Conservatism Bias

Answer 4

Investors are too slow (too conservative) in updating their beliefs in response to recent evidence.

Question 5

Framing

Answer 5

Decisions are affected by how choices are posed, for example, as gains relative to a low baseline level or losses relative to a higher baseline.

Question 6

Mental Accounting

Answer 6

A specific form of framing in which people segregate certain decisions.

Question 7

Prospect Theory

Answer 7

Behavioral theory that investor utility depends on gains or losses from investors’ starting position, rather than on their levels of wealth.

Question 8

Put/Call Ratio

Answer 8

Ratio of put options to call options outstanding on a stock.

Question 9

Regret Avoidance

Answer 9

People blame themselves more for unconventional choices that turn out badly so they avoid regret by making conventional decisions.

Question 10

Relative Strength

Answer 10

Recent performance of a given stock or industry compared to that of a broader market index.

Question 11

Representativeness Bias

Answer 11

People are too prone to believe that a small sample is representative of a broad population and infer patterns too quickly.

Question 12

Short Interest

Answer 12

The total number of shares currently sold short in the market.

Question 13

Trin Statistic

Answer 13

The ratio of average volume in declining issues to average volume in advancing issues.