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1、Chapter 12 Behavioral Finance and Technical Analysis Multiple Choice Questions1.Conventional theories presume that investors _ and behavioral finance presumes that they _. A)are irrational; are irrational B)are rational; may not be rational C)are rational; are rational D)may not be rational; may not
2、 be rational E)may not be rational; are rational Answer: B Difficulty: Easy 2.The premise of behavioral finance is that A)conventional financial theory ignores how real people make decisions and that people make a difference. B)conventional financial theory considers how emotional people make decisi
3、ons but the market is driven by rational utility maximizing investors. C)conventional financial theory should ignore how the average person makes decisions because the market is driven by investors that are much more sophisticated than the average person. D)B and C E)none of the above Answer: A Diff
4、iculty: Easy 3.Some economists believe that the anomalies literature is consistent with investors _ and _. A)ability to always process information correctly and therefore they infer correct probability distributions about future rates of return; given a probability distribution of returns, they alwa
5、ys make consistent and optimal decisions B)inability to always process information correctly and therefore they infer incorrect probability distributions about future rates of return; given a probability distribution of returns, they always make consistent and optimal decisions C)ability to always p
6、rocess information correctly and therefore they infer correct probability distributions about future rates of return; given a probability distribution of returns, they often make inconsistent or suboptimal decisions D)inability to always process information correctly and therefore they infer incorre
7、ct probability distributions about future rates of return; given a probability distribution of returns, they often make inconsistent or suboptimal decisions E)none of the above Answer: D Difficulty: Moderate 4.Information processing errors consist ofI) forecasting errorsII) overconfidenceIII) conser
8、vatismIV) framing A)I and II B)I and III C)III and IV D)IV only E)I, II and III Answer: E Difficulty: Moderate 5.Forecasting errors are potentially important because A)research suggests that people underweight recent information. B)research suggests that people overweight recent information. C)resea
9、rch suggests that people correctly weight recent information. D)either A or B depending on whether the information was good or bad. E)none of the above. Answer: B Difficulty: Moderate 6.DeBondt and Thaler believe that high P/E result from investors A)earnings expectations that are too extreme. B)ear
10、nings expectations that are not extreme enough. C)stock price expectations that are too extreme. D)stock price expectations that are not extreme enough. E)none of the above. Answer: A Difficulty: Moderate 7.If a person gives too much weight to recent information compared to prior beliefs, they would
11、 make _ errors. A)framing B)selection bias C)overconfidence D)conservatism E)forecasting Answer: E Difficulty: Moderate 8.Single men trade far more often than women. This is due to greater _ among men. A)framing B)regret avoidance C)overconfidence D)conservatism E)none of the above Answer: C Difficu
12、lty: Moderate 9._ may be responsible for the prevalence of active versus passive investments management. A)Forecasting errors B)Overconfidence C)Mental accounting D)Conservatism E)Regret avoidance Answer: B Difficulty: Moderate 10.Barber and Odean (2000) ranked portfolios by turnover and report that
13、 the difference in return between the highest and lowest turnover portfolios is 7% per year. They attribute this to A)overconfidence B)framing C)regret avoidance D)sample neglect E)all of the above Answer: A Difficulty: Moderate 11._ bias means that investors are too slow in updating their beliefs i
14、n response to evidence. A)framing B)regret avoidance C)overconfidence D)conservatism E)none of the above Answer: D Difficulty: Moderate 12.Psychologists have found that people who make decisions that turn out badly blame themselves more when that decision was unconventional. The name for this phenom
15、enon is A)regret avoidance B)framing C)mental accounting D)overconfidence E)obnoxicity Answer: A Difficulty: Moderate Rationale: An investments example given in the text is buying the stock of a start-up firm that shows subsequent poor performance, versus buying blue chip stocks that perform poorly.
16、 Investors tend to have more regret if they chose the less conventional start-up stock. DeBondt and Thaler say that such regret theory is consistent with the size effect and the book-to-market effect.13.An example of _ is that a person may reject an investment when it is posed in terms of risk surro
17、unding potential gains but may accept the same investment if it is posed in terms of risk surrounding potential losses. A)framing B)regret avoidance C)overconfidence D)conservatism E)none of the above Answer: A Difficulty: Moderate 14.Statman (1977) argues that _ is consistent with some investors ir
18、rational preference for stocks with high cash dividends and with a tendency to hold losing positions too long. A)mental accounting B)regret avoidance C)overconfidence D)conservatism E)none of the above Answer: A Difficulty: Moderate 15.An example of _ is that it is not as painful to have purchased a
19、 blue-chip stock that decreases in value, as it is to lose money on an unknown start-up firm. A)mental accounting B)regret avoidance C)overconfidence D)conservatism E)none of the above Answer: B Difficulty: Moderate 16.Arbitrageurs may be unable to exploit behavioral biases due to _.I) fundamental r
20、iskII) implementation costsIII) model riskIV) conservatismV) regret avoidance A)I and II only B)I, II, and III C)I, II, III, and V D)II, III, and IV E)IV and V Answer: B Difficulty: Moderate 17._ are good examples of the limits to arbitrage because they show that the law of one price is violated.I)
21、Siamese Twin CompaniesII) Unit trustsIII) Closed end fundsIV) Open end fundsV) Equity carve outs A)I and II B)I, II, and III C)I, III, and V D)IV and V E)V Answer: C Difficulty: Moderate 18._ was the grandfather of technical analysis. A)Harry Markowitz B)William Sharpe C)Charles Dow D)Benjamin Graha
22、m E)none of the above Answer: C Difficulty: Easy Rationale: Charles Dow, the originator of the Dow Theory, was the grandfather of technical analysis. Benjamin Graham might be considered the grandfather of fundamental analysis. Harry Markowitz and William Sharpe might be considered the grandfathers o
23、f modern portfolio theory.19.The goal of the Dow theory is to A)identify head and shoulder patterns. B)identify breakaway points. C)identify resistance levels. D)identify support levels. E)identify long-term trends. Answer: E Difficulty: Easy Rationale: The Dow theory uses the Dow Jones Industrial A
24、verage as an indicator of long-term trends in market prices.20.A long-term movement of prices, lasting from several months to years is called _. A)a minor trend B)a primary trend C)an intermediate trend D)trend analysis E)B and D Answer: B Difficulty: Easy Rationale: Minor trends are merely day-to-d
25、ay price movements; intermediate trends are or offsetting movements in one direction after longer-term movements in another direction; trends lasting for the period described above are primary trends.21.A daily fluctuation of little importance is called _ A)a minor trend B)a primary trend C)an inter
26、mediate trend D)a market trend E)none of the above Answer: A Difficulty: Easy 22.Price movements that are caused by short-term deviations of prices from the underlying trend line are called A)primary trends. B)secondary trends. C)tertiary trends. D)Dow trends. E)contrary trends. Answer: B Difficulty
27、: Easy Rationale: The secondary trend is caused by these deviations, which are eliminated by corrections that bring the prices back to the trend lines.23.The Dow theory posits that the three forces that simultaneously affect stock prices are _.I) primary trendII) intermediate trendIII) momentum tren
28、dIV) minor trendV) contrarian trend A)I, II, and III B)II, III, and IV C)III, IV and V D)I, II, and IV E)I, III, and V Answer: D Difficulty: Moderate 24.The Elliot Wave Theory _. A)is a recent variation of the Dow Theory B)suggests that stock prices can be described by a set of wave patterns C)is si
29、milar to the Kondratieff Wave theory D)A and B E)A, B, and C Answer: E Difficulty: Easy Rationale: Both the Elliot Wave Theory and the Kondratieff Wave Theory are recent variations on the Dow Theory, which suggests that stock prices move in identifiable wave patterns.25.A trin ratio of less than 1.0
30、 is considered as a _. A)bearish signal B)bullish signal C)bearish signal by some technical analysts and a bullish signal by other technical analysts D)bullish signal by some fundamentalists E)C and D Answer: B Difficulty: Easy Rationale: A trin ratio of less than 1.0 is considered bullish because t
31、he declining stocks have lower average volume than the advancing stocks, indicating net buying pressure.26.On October 29, 1991 there were 1,031 stocks that advanced on the NYSE and 610 that declined. The volume in advancing issues was 112,866,000 and the volume in declining issues was 58,188,000. Th
32、e trin ratio for that day was _ and technical analysts were likely to be _. A)0.87, bullish B)0.87, bearish C)1.15, bullish D)1.15, bearish E)none of the above Answer: A Difficulty: Moderate Rationale: (1,031/610) / (112,866,000/58,388,000) = 0.87. A trin ratio less than 1 is considered bullish beca
33、use advancing stocks have a higher volume than declining stocks, indicating a buying pressure.27.In regard to moving averages, it is considered to be a _ signal when market price breaks through the moving average from _. A)bearish; below B)bullish: below C)bearish; above D)bullish above E)B and C An
34、swer: E Difficulty: Moderate 28.Two popular moving average periods are A)90-day and 52 week B)180-day and three year C)180-day two year D)200-day and 53 week E)200-day and two year Answer: D Difficulty: Moderate 29._ is a measure of the extent to which a movement in the market index is reflected in
35、the price movements of all stocks in the market. A)put-call ratio B)trin ratio C)Breadth D)confidence index E)all of the above Answer: C Difficulty: Moderate 30.Then confidence index is computed from _ and higher values are considered _ signals. A)bond yields; bearish B)odd lot trades; bearish C)odd
36、 lot trades; bullish D)put/call ratios; bullish E)bond yields; bullish Answer: E Difficulty: Moderate 31.The put/call ratio is computed as _ and higher values are considered _ signals. A)the number of outstanding put options divided by outstanding call options; bullish or bearish B)the number of out
37、standing put options divided by outstanding call options; bullish C)the number of outstanding put options divided by outstanding call options; bearish D)the number of outstanding call options divided by outstanding put options; bullish E)the number of outstanding call options divided by outstanding
38、put options; bullish Answer: A Difficulty: Moderate 32.The efficient market hypothesis _. A)implies that security prices properly reflect information available to investors B)has little empirical validity C)implies that active traders will find it difficult to outperform a buy-and-hold strategy D)B
39、and C E)A and C Answer: E Difficulty: Moderate 33.Tests of market efficiency have focused on _. A)the mean-variance efficiency of the selected market proxy B)strategies that would have provided superior risk-adjusted returns C)results of actual investments of professional managers D)B and C E)A and
40、B Answer: D Difficulty: Moderate 34.The anomalies literature _. A)provides a conclusive rejection of market efficiency B)provides a conclusive support of market efficiency C)suggests that several strategies would have provided superior returns D)A and C E)none of the above Answer: C Difficulty: Mode
41、rate 35.Behavioral finance argues that _. A)even if security prices are wrong it may be difficult to exploit them B)the failure to uncover successful trading rules or traders cannot be taken as proof of market efficiency C)investors are rational D)A and B E)all of the above Answer: D Difficulty: Mod
42、erate 36.Markets would be inefficient if irrational investors _ and actions if arbitragers were _. A)existed; unlimited B)did not exist; unlimited C)existed; limited D)did not exist; limited E)none of the above Answer: C Difficulty: Moderate 37.If prices are correct _ and if prices are not correct _
43、. A)there are no easy profit opportunities; there are no easy profit opportunities B)there are no easy profit opportunities; there are easy profit opportunities C)there are easy profit opportunities; there are easy profit opportunities D)there are easy profit opportunities; there are no easy profit
44、opportunities E)none of the above Answer: A Difficulty: Moderate 38._ can lead investors to misestimate the true probabilities of possible events or associated rates of return. A)Information processing errors B)Framing errors C)Mental accounting errors D)Regret avoidance E)all of the above Answer: A Difficulty: Moderate