Equity (1.0): Market Efficiencies/ Behavioral

Question 1

refers to uninformed traders watching the actions of informed traders when making investment decisions

Answer 1

Information cascades

Question 2

when trading occurs in clusters, not necessarily driven by market info

Answer 2

herding behavior

Question 3

investors viewing events in isolation

Answer 3

narrow framing

Question 4

exhibited by an investor who dislikes a loss more than he likes an equal gain. That is, the investor’s risk preferences are asymmetric.

Answer 4

Loss aversion

Question 5

Refers to mentally classifying investments in separate accounts rather than considering them from a portfolio perspective

Answer 5

Mental accounting

Question 6

refers to a tendency to maintain one’s prior views even in the presence of new information.

Answer 6

conservatism

Question 7

Helps to prevent market prices from becoming overvalued

Answer 7

short selling

Question 8

If the market is _______, portfolio managers should use passive management because neither technical analysis nor fundamental analysis will generate positive abnormal returns on average over time

Answer 8

Semi-strong efficient

Question 9

active investment strategies cannot consistently achieve risk-adjusted returns superior to holding a passively managed index portfolio in a :

Answer 9

informationally efficient market

Question 10

the result of tax induced trading at year end; An investor can profit by buying stocks in December and selling them during the first week in January.

Answer 10

The January Anomaly

Question 11

Prices reflect private & past market data and public information

Answer 11

Strong form

no group of investors has monopolistic access to information relevant to the formation of prices

Question 12

suggests it is possible to earn abnormal returns using market data; providing evidence against weak and semi-strong forms

Answer 12

momentum

Question 13

refers to stocks with poor returns over three to five-year periods that had higher subsequent performance than stocks with high returns in the prior period

Answer 13

overreaction effect

Question 14

Investment strategies based on fundamental analysis of public information and past market data could achieve abnormal returns:

Answer 14

Weak-form efficient

Question 15

Security prices reflect publicly known and available information and past market data

Answer 15

Semi-strong form efficient

Question 16

Assumes the price of a security reflects all historical price and volume information:

Answer 16

Weak-form efficiency

Question 17

Assumes that stock prices reflect all information: market, non-market, & private:

Answer 17

Strong-form efficiency