Misc. - HB

Question 1

What is prospect theory?

Answer 1

People will take on more risk to potentially void losses but settle for moderate gain before taking risk at higher gain

Question 2

Odd lot theory

Answer 2

Small investors (who purchase in odd or broken lots) do not know what they are doing and will do the wrong thing at the wrong time in a market’s cycle.

Question 3

Barron’s confidence theory

Answer 3

the ratio of the yield of high quality bond issues to the yield of low quality bond issues is an indicator of investor confidence in the stock market.
* high ratio = high confidence (max value of 1

Question 4

Dow theory

Answer 4

Stock prices move in tends (primary, secondary, and tertiary)
* 2 secondary tends predict a reversal in sentiment, but 1 alone does not.

Question 5

What is the unbiased expectations theory?

Answer 5

That positively slopped yield curve means investors expect interest rates to rise in future

Question 6

What is the liquidity preference theory?

Answer 6

B/C preference for liquidity and higher risk of long duration bonds, investors require to be compensated for said risk