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36 Cards in this Set
- Front
- Back
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The simultaneous purchase and sale of securities to lock in a risk-free profit is called
a. speculation b. noise trading c. market timing d. arbitrage |
d. arbitrage
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Fundamental risk arises because prices can rationally change as information arrives.
a. true b. false |
a. true
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which of the following is true?
a. Heuristics typically complicate decisions in an already complicated world. b. Heuristics have no cognitive bias. c. Heuristics work well when applied in a new environment d. Heuristics are decision-making shortcuts |
d. Heuristics are decision-making shortcuts
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A market can be efficient as long as:
a. arbitrage is unlimited b. the errors investors make are uncorrelated c. all traders are rational. d. and of the above conditions is satisfied. |
d. any of the above is satisfied
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Researchers have looked at how markets react to earnings announcements and report that while markets react positively to good news and negatively to bad news, there is continued drift in prices.
a. true b. false |
a. true
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Which of the following is false?
a. high-income people tend to be more overconfident b. Men tent to be more over confident than women c. people with less education tend to be more overconfident. d. people tend to be under-confident outside their area of expertise |
c. people with less education tend to be more overconfident.
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Value stocks have low prices relative it earnings.
a. true b. false |
a. true
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Sometimes people hold two thoughts that are psychologically inconsistent. This is called
a. reconstruction b. recency c. hindsight bias d. cognitive dissonance |
d. cognitive dissonance
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You friend, jake, often buys lottery numbers. He likes to pick numbers that have won in recent months because he figures these numbers are due to come up. Jake falls prey to
a. gambler's fallacy b. overconfidence c. a belief in the hot hands phenomenon d. base rate neglect |
a. gambler's fallacy
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I is often observed that people value what they have more than they would if they had to go out and buy it. This is called
a. the endowment effect b. the diversification heuristics c. fundamental risk d. anchoring |
a. the endowment effect
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which is more likely?
a. matt is a finance major and good a picking winning stock b. matt is good at picking stock |
b. madd is good at picking winning stock
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According to this heuristic, specific scenarios seem more likely than general ones because they better represent how we imagine things to be. This is called
a. base rate neglect b. salience bias c. the representativeness heuristic d. anchoring e. the availability heuristic |
c. the representativeness heuristic
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In 2000 3Com carved out an IPO of its subsidiary, Palm. The outcome was surprising because persistent misplacing was observed. what was surprising about the misplacing?
a. The implied residual or stub value of 3Com was negative b. The implied residual or stub value of 3Com was zero c. The implied residual or stub value of 3Com was positive. d. it was surprising that there was no misplacing. |
c. the implied residual or stub value of 3Com was positive.
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"I knew it all along" we refer to the belief that you knew something would happen after the fact as
a. recall b. cognitive dissonance c. hindsight bias d. a heuristic |
c. hindsight bias
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The bias predicts that people underweight new information and stick to prior beliefs too long. which is it?
a. availability b. anchoring c. salience d. base rate neglect d. recency |
b. anchoring
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________________ is the tendency to think that your knowledge is more knowledge is more accurate than it really is.
a. illusion of control b. miscalibration c. anchoring d. representativeness |
b. miscalibration
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Researchers report short and long-term in returns so that winners become losers and losers become winners
a. true b. false |
b. false
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Arbitrageurs take advantage of mispricing in asset markets. What limits their ability to arbitrage?
a. restrictions on short sales b. fundamental-risk c. noise- trader risk d. trading costs, including bid-ask spread e. all of the above limit arbitrage |
e. all of the above limit arbitrage
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Correlated opinion on value that is not related to fundamental information and can move markets is called ________________.
a. noise b. sentiment c. momentum d. serial correlation e. rationality |
b. sentiment
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Overconfidence can take different manifestations. which of the below is NOT a form of overconfidence?
a. illusion of control b. excessive optimism c. miscalibration d. hot hand phenomenon e. better-than-average effect |
d. Hot hand phenomenon
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Glamour stocks have low prices relative to earnings.
a. true b. false |
b. false
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___________________ suggests that people;s assessments are often influenced y features that are easy to judge rather than by features that are important.
a. anchoring b. base rate fallacy c. hot hands phenomenon d. the evaluability hypothesis |
d. the evaluability hypothesis
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sometimes people hold two thoughts that are psychologically inconsistent. this is called
a. reconstruction b. recency c. cognitive dissonance d. hindsight bias |
c. cognitive dissonance
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Researchers report long-term momentum in returns so that winners become losers and losers become winners
a. true b. false |
b. false
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expectations impact perceptions
a. true b. false |
a. true
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which of the following statements regarding the small firm effect is false?
a. this effect predicts that small capitalization portfolios beat large b. small-cap investing became a recognized trading strategy c. small firms earned negative excess returns after accounting for risk d. over recent years, the small firm effect has disappeared |
c. small firms earned negative excess returns after accounting for risk
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In a common value auction with incomplete information people often bid too much for the asset. which of the following is possible factor in explaining winner's curse?
a. anchoring b. rationality c. overconfidence d. representativeness |
c. overconfidence
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A friend describes her sister as a smart, hard-working, and quiet. Later when you think about the sister you recall that she was described as intelligent. This is an example of
a. representativeness b. a halo effect c. a recency effect d. a primacy effect |
d. a primacy effect
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Arbitrageurs attempt to generate profit by trading on misplacing in asset markets. What limits the ability to arbitrage?
a. trading costs, including the bid-ask spread b. restrictions on short sales c. fundamental risk d. noise-trader risk e. all of the above limit arbitrage |
e. all of the above limit arbitrage
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For the majority of people, specific scenarios seem more likely than general ones because they better characterize or stand for how we imagine something to be. This is referred to as
a. anchoring b. representativeness c. ambiguity aversion d. status quo bias e. self-attribution bias |
b. representativness
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Which is more likely?
a. natalie is a finance major and good at picking winning stocks b. Natalie is good at picking winning numbers |
b. Natalie is good at picking winning numbers
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A market can be efficient if
a. all traders are rational b. arbitrage is unlimited c. the errors investors make are uncorrelated d. any of the above conditions is satisfied |
d. any of the above conditions is satisfied
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Scott has an MBA from Wharton and is a Wall Street investment banker. Madelyn does not have a university degree and is a struggling entrepreneur. Who would you guess to be less overconfident about the performance of his/her stock portfolio?
a. Scott b. Madelyn |
b. Madelyn
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Sometimes people are stuck on a prior belief. For example, if the morning weather report says rain, I expect rain that day even if the sun is shining. This is an example of
a. availability b. salience c. anchoring d. recency |
c. anchoring
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which of the following is false?
a. Heuristics simplify decisions in a complicated world b. A heuristic is a decision-making shortcut c. Heuristic have no cognitive basis d. Heuristics may not work well when applied in a new environment |
c. Heuristics have not cognitive basis
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Fundamental risk arises because prices can rationally change as information arrives.
a. true b. false |
a. true
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