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chapt2 C&&C > FINMANE2 > Flashcards

FINMANE2 Flashcards

1
Q

People in ____
are rational

A

Traditional Finance

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2
Q

People in ____ are normal

A

Behavioral
Finance

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3
Q

who said this - People in Traditional Finance are rational. People in Behavioral Finance are normal

A

Mier Statman, Ph.D., Santa Clara University

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4
Q

who’s the author= Behavioral finance as behavioral economics and is further defined as “combining the twin discipline of psychology and economics to explain why and how people make seemingly irrational or illogical decisions” and why they save, invest, spend, and borrow money.

A

Belsky and Gilowich (1999)

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5
Q

who’s the author = Behavioral finance tries to undestand how people
forget fundamentals and
make investments based
on emotions

A

Verma (2004)

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6
Q

who’s the author= Swell (2005)

A

he assets that behavioral finance is the study of the influence of
psychology on the behavior
of financial practitioners
and the subsequent effect
on markets

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7
Q

2 categories of Irrationalities

A
  1. Investors do not always process information correctly.
  2. Even when given a probability distribution of returns, investors may make inconsistent or suboptimal decisions.
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8
Q

Examines behaviors or biases
of individual investors that
distinguish them from the
rational actors envisioned in
classical economic theory.

A

Behavioral
Finance Micro

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9
Q

Detects and describe anomalies in
the efficient market hypothesis
that behavioral models may
explain.

A

Behavioral
Finance Macro

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10
Q

who invented MODERN BEHAVIORAL
FINANCE?

A

Dr. Daniel Kahneman and
Dr. Amos Tversky

“The Brilliant Pair”

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11
Q

PSYCHOGRAPHIC MODELS
USED IN BEHAVIORAL
FINANCE

A

Barnewall Two-Way Model
BB&K Five-Way Model

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12
Q

they apply useful models of investor psychographics.

A

Two studies—Barnewall (1987) and Bailard, Biehl, and Kaiser (1986)

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13
Q

One of the oldest and most prevalent psychographic investor models

A

Barnewall Two-Way Model

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14
Q

Barnewall was based on the work of ____, was intended to
help investment advisors interface with clients.

A

Marilyn MacGruder Barnewall

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15
Q

Barnewall distinguished between two relatively simple investor
types:

A

Passive Investors
Active Investors

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16
Q

Behavioral Investor Type

A

Passive
Preserver
(PP)

Friendly
Follower
(FF)

Independent
Individualist
(II)

Active
Accumulator
(AA)

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17
Q

Inherit the money, not
earned
* “Worriers”
* Careful not to take excessive
risk
* Family

A

Passive Preserver

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18
Q

Do not have their ideas
about investing
* They follow the lead of their
friends
* education on the benefits of
portfolio diversification

A

Friendly Follower

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19
Q

“trust their gut”
* Initial information rather
than corroborational
* Although they are busy
people, still they will reject
financial Advice
* Contrarian

A

Independent Individualist

20
Q

“The Most Aggressive”
* Strong willed and confident
* They always hope for high
return

A

Active Accumulator

21
Q

Investment Type

A

*Direct Equity Investments
*Equity Funds
*Hedge Funds
*Bonds (Government or Corporate)
*Derivatives
*Real Estate
*Pension Funds
*Gold

22
Q

BB&K Five-Way Model

A

Adventurer
Celebrity
Individualist
Guardian
Straight Arrow

23
Q

People who are willing to put it all on one bet and go for it
because they have confidence. They are difficult to advise
because they have their own ideas about investing. They are
willing to take risks, and they are volatile clients from an
investment counsel point of view

A

Adventurer

24
Q

These people like to be where the action is. They are afraid of
being left out. They really do not have their own ideas about
investments. They may have their own ideas about other
things in life, but not investing. As a result, they are the best
prey for maximum broker turnover

A

Celebrity

25
Q

These people tend to go their own way and are typified by the
small business person or an independent professional, such as
a lawyer, CPA, or engineer. They try to make their own
decisions in life, carefully going about things, and having a
certain degree of confidence about them, but also being
careful, methodical, and analytical. These are clients whom
everyone is looking for—rational investors with whom the
portfo?lio manager can talk sense

A

Individualist

26
Q

Typically, as people get older and begin considering retirement, they
approach this personality profile. They are careful and a little bit worried
about their money. They recognize that they face a limited earning time span
and have to preserve their assets. They are definitely not interested in
volatility or excitement. Guardians lack confidence in their ability to forecast
the future or to understand where to put money, so they look for guidance

A

Guardian

27
Q
A
28
Q

These people are so well balanced, they cannot be placed in any
specific quadrant, so they fall near the center. On average this group
of clients is the average investor, a relatively balanced composite of
each of the other four investor types, and by implication a group
willing to be exposed to medium amounts of risk

A

Straight Arrow

29
Q

Direct Equity
Investments,
Equity Funds
Hedge Funds

what investor is this from BB&K MODEL

A

Adventurer

29
Q

Direct Equity,
Bonds
Equity Funds

what investor is this from BB&K MODEL

A

Celebrity

30
Q

Derivatives,
Direct Equity, Real
Estate

what investor is this from BB&K MODEL

A

Individualist

31
Q

Bonds
Pension Funds
Gold

what investor is this from BB&K MODEL

A

Guardian

32
Q

All Investments
including Equity,
Bonds and Gold

A

Straight Arrow

33
Q

is one in which an investor receives shares of a company directly from the stock market.

A

Direct Equity Investment

34
Q

open-ended investment vehicles in which money is pooled and invested in various companies’ shares and stocks.

A

Equity Funds

35
Q

is a limited partnership of private investors whose money is pooled and managed by professional fund managers.

A

Hedge Fund

36
Q

is a fixed-income instrument and investment product where individuals lend money to a government or company at a certain interest rate for an amount of time.

A

Bond

37
Q

efers to a type of financial contract whose value is dependent on an underlying asset, group of assets, or benchmark. A ___ is set between two or more parties that can trade on an exchange or over the counter (OTC).

A

Derivatie

38
Q

defined as the land and any permanent structures, like a home, or improvements attached to the land, whether natural or man-made.

A

Real Estate

39
Q

is a financial entity established by an employer to provide retirement benefits to employees.

A

Pension Funds

40
Q

type of investment fund that holds assets related to gold

A

Golds

41
Q

This pertains to human feelings

A

Behavioral Finance

42
Q

This pertains to calculated basis

A

Traditional

43
Q

the tendency of the people in a group to think and behave in ways that conform with others in the group rather than as individuals

A

Herd Mentality

44
Q

The concept of behavioral finance dates to ??? when George Seldon published “Psychology of the Stock Market.

A

1912

45
Q

the theory gained popularity and momentum in ??? when Daniel Kahneman and Amos Tversky proposed

A

1979

chapt2 C&&C (10 decks)

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