Brainscape's Knowledge GenomeTM

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


See full index

Module 1 > MM34 Exam Group 1&2 > Flashcards

MM34 Exam Group 1&2 Flashcards

1
Q

-is when the actual result under a given set of assumptions is different from the expected result predicted by a model.

-provides evidence that a given assumption or model does not hold up in practice. The model can either be a relatively new or older model.

A

ANOMALY

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

Two common types of anomalies:

A

MARKET ANOMALIES
PRICING ANOMALIES

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

are distortions in returns that contradict theefficient market hypothesis(EMH).

A

MARKET ANOMALIES

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

are when something—for example, a stock—is priced differently than how a model predicts it will be priced.

A

PRICING ANOMALIES

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

Causes of anomalies in an efficient market

A

Mispricing
Limits to arbitrage
Unmeasured risk
Selection bias

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

is the ratio of a firm’s asset price to its fundamental value, which is the present value of future cash flows under rational expectations.

A

MISPRICING

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

is a theory in financial economics that, due to restrictions that are placed on funds that would ordinarily be used by rational traders to arbitrage away pricing inefficiencies, prices may remain in a non-equilibrium state for protracted periods of time.

A

Limits to arbitrage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

In finance, risk factors are the building blocks of investing, that help explain the systematic returns in equity market, and the possibility of losing money in investments or business adventures.

A

Unmeasured risk

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

is the bias introduced by the selection of individuals, groups, or data for analysis in such a way that proper randomization is not achieved, thereby failing to ensure that the sample obtained is representative of the population intended to be analyzed.[1] It is sometimes referred to as the selection effect. The phrase “selection bias” most often refers to the distortion of a statistical analysis, resulting from the method of collecting samples

A

Selection bias

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

Several studies in markets across the world have yielded the following results. Stocks with below average price-to-earnings and market-to-book ratios have consistently outperformed growth stocks over a period of time. This is a contradiction of the semi-strong efficient market form as financial disclosures are used to beat the market consistently.

A

Value Effect

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

One study observed that on a risk-adjusted basis small-cap equities out-performed large cap equities. This anomaly was not observed in further studies and was therefore disregarded.

A

Size Effect

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

Other Anomalies

A

-Close-end investment fund
discounts
-Earning Surprise
-Initial Public Offerings
-Abnormal profits based on dividends

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

issues a limited number of shares during one offering, thus fixing the market capitalization till a second offering is made. In theory these shares must trade at their net asset value or NAV.

A

Close-end investment fund
discounts

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

Pricing anomalies studied in the context of adjustment of stock prices in relation to earnings announcement come under the purview of earning surprise.

A

Earnings Surprise

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Companies avail the services of investment banks in pricing and marketing of their shares in their first stock market foray. As the entrants are new, their selling prices are set low and tend to see an increase on the first day of trading.

A

Initial Public Offerings

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

Market researchers state that equity returns are impacted by stock volatility, inflation, interest rates and dividend yields. This should indicate market inefficiency especially of weak form. This does not hold true though over a period of time. The relationship between stock prices and dividends has been found to vary from positive to negative from time to time.

A

Abnormal profits based on dividends

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Types of Market Anomalies

A

The small- firm effect
Price reversals
January effect
The momentum effect

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

holds that smaller companies have a greater amount of growth opportunities than larger companies.

A

The small- firm effect

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

is also referred to as the mean reversion effect and refers to the tendency of stocks that have performed well in the past to underperform in the future, and the tendency of stocks that have underperformed in the past to outperform in the future

A

The price reversals

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

is a hypothesis that there is a seasonal anomaly in the financial market where securities’ prices increase in the month of January more than in any other month.

A

The january effect

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

refers to the market anomaly where stocks that have had the greatest return continue to outperform those with weak returns.

A

The momentum effect

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Other type’s of Market anomalies

A

September Effect
Days of the Week Anomalies
Monday effect

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

refers to historically weakstock market returns for the month of September. There is a statistical case for the September effect depending on the period analyzed,but much of the theory is anecdotal

A

September Effect

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

is the type of anomalies that affect the stock returns to intimately tied to the day of the week.

A

Days of the Week Anomalies

25
Q

is a theory which states that returns on thestock marketon Mondays will follow the prevailing trend from the previous Friday. Therefore, if the market was up on Friday, it should continue through the weekend and, come Monday, resume its rise. The Monday effect is also known as the “weekend effect.”

A

Monday effect

26
Q

the branch of microeconomics that studies how information and information systems affect an economy and economic decisions.

or also called, INFORMATION ECONOMICS

A

Economic of Information

27
Q

is the discipline of modeling the role of information in an economic system. Information is a strange good that is easy to create, difficult to validate, easy to share but difficult to unshare.

A

INFORMATION ECONOMICS

28
Q

is a fundamental economic force that plays a role in every economic decision. Many economic models make naive assumptions about information such as the assumption that all economic agents have perfect information.

A

Information

29
Q

14 Example of Information Economics

A

INFORMATION OF GOODS
Knowledge Economy
Risk & Uncertainty
Unknown Unknowns
Behavioral Economics
Expectations
Asymmetric Information
Incentives
Speculation
Private Information
Adverse Selection
Search Costs
Signalling
Screening

30
Q

The value of information goods including data such as market data and knowledge such as a book.

A

INFORMATION OF GOODS

31
Q

A global economic shift towards jobs that produce knowledge outputs such as strategies, plans, designs, specifications, instructions, data and computer code.

A

Knowledge Economy

32
Q

Risk results from a lack of information about the future, also known as uncertainty.

A

Risk & Uncertainty

33
Q

Risk can be identified, estimated and managed but unknown unknowns will remain.

A

Unknown Unknowns

34
Q

Modeling how real people actually react to information

A

Behavioral Economics

35
Q

Expectations that influence economic behavior.

A

Expectations

36
Q

is when certain economic agents have an information advantage over others in a market.

A

Asymmetric Information

37
Q

The information that is used to award economic agents such as the executive management of a firm.

A

Incentives

38
Q

Economic agents who attempt to forecast the future to profit.

A

Speculation

39
Q

Information as a competitive advantage such as a trade secret or patent.

A

Private Information

40
Q

A situation where either the buyer or the seller have more information in a transaction.

A

Adverse Selection

41
Q

The difficulty in finding information to make economic decisions. Decreases in search costs, such as the introduction of the internet, can make an industry far more competitive as it allows people to more easily evaluate prices and quality.

A

Search Costs

42
Q

Firms often want to charge consumers different prices based on their willingness to pay but this information is difficult to determine.

is the process of trying to differentiate between customers based on their price sensitivity.

A

Screening

43
Q

The communication of value in a market.

A

Signalling

44
Q

The importance and value of information within economics is huge. It eliminates risk and uncertainty, and it makes it possible to take better choices that will report higher yields. The less risk and uncertainty there is, the higher the utility will be valued.

A

Importance of economic of information

45
Q

occurs when one party in a transaction or
competitive situation has more information
than the other party.

A

Asymmetric Information

46
Q

Two Forms of Asymmetric Information

A
  1. Adverse Selection
  2. Moral Hazards
47
Q

occurs when buyers cannot
detect product quality prior
to purchase and use.

A

Adverse Selection

48
Q

It is the action or announcements
conveying information about a firm’s
intentions or abilities.

A

Signals

49
Q

occurs when the seller can
change the quality of their
offerings without detection
by buyers prior to the
purchase or trial.

A

Moral Hazards

50
Q

TYPES OF QUALITY SIGNALS

A

Default-Independent Signals
Default-Contingent Signals

51
Q

the seller incurs the signal cost
regardless of whether it fails to perform
as promised

A

Default-Independent Signals

52
Q

the seller incurs the signal cost only
when they fail to perform as promised

A

Default-Contingent Signals

53
Q

It is a promise made by the seller that
the product, or its performance-related
attributes, is free from defects in
materials and workmanship.

A

WARRANTIES

54
Q
  • Represents the value of the brand name to
    the buyers
  • Brand name reduces buyers’ search and
    information processing costs, and perceived
    risk.
  • To be credible, maintain consistent marketing
    and delivery of quality,
  • Advertising claims must be consistent with the
    actual quality delivered
A

Brand Equity

55
Q

A money-back guarantee promises
to return the buyer’s purchase
price if the product fails to satisfy
the buyer during the period
covered by the guarantee

A

GUARANTIES

56
Q

It occurs when sellers can change
the quality of their offerings
without buyers’ detection before
purchase or trial.

A

Moral Hazards

57
Q

Buyer’s willingness to pay a price
premium and their willingness and
ability to punish the seller if quality is
compromised, provide incentives to
solve this moral hazard problem.

A

Price Premiums

58
Q

● Firms battle for the patronage of
customers, try to take business from a
rival, or seek to drive a competitor out
of the market.
● When competition is gaining in these
battles, price reductions occur leading
to price wars

A

Price Wars

Module 1 (17 decks)

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