Financial Services 400 Test 2

Front 1

Few will ever be successful in significantly outperforming the market over a short time period

Back 1

False

Front 2

In a perfectly efficient market all stocks are fairly priced at all points in time

Back 2

True

Front 3

According to the weak-form hypothesis, trading rules based upon past stock market returns are futile.

Back 3

True

Front 4

According to the semi-strong form hypothesis, not even investors with private information can beat the market.

Back 4

False

Front 5

According to strong-form hypothesis, current prices reflect all public information and nonpublic information.

Back 5

True

Front 6

In an efficient stock market, it would not be possible to earn above-market returns by buying or selling stocks on the premise that their prices are trending up.

Back 6

True

Front 7

According to weak-form hypothesis, anything you read in the newspaper, hear on television, or see on the internet is already reflected in stock and bond prices.

Back 7

False

Front 8

According to random walk theory, subsequent price changes represent arbitrary departures from previous prices.

Back 8

True

Front 9

The mathematical expectation of the speculator's profit is zero when stock prices follow a random walk.

Back 9

True

Front 10

In practice, daily rates of return on common stocks have a slight upward bias, or upward drift, given the long-term positive expectation for investor rates of return.

Back 10

True.

Front 11

An out-of-sample experiment is a test of any historically useful technical trading rule over some new sample of data.

Back 11

True

Front 12

It is relatively easy to find some mechanical trading rule that would have provided superior investment returns over some historical time frame even when historical market returns resemble a table of random numbers.

Back 12

True

Front 13

Measuring the success of professional investment management is made difficult by the problems of finding appropriate investment benchmarks.

Back 13

True

Front 14

The existence of stock market bubbles is evidence that markets are efficient.

Back 14

False

Front 15

Stock prices appear too volatile for the stock market to be considered efficient.

Back 15

True

Front 16

Traditional financial theories such as CAPM and arbitrage pricing theory are based on positive description of human behavior.

Back 16

False

Front 17

In the value function of prospect theory, utility is a function of losses/gains.

Back 17

Ture

Front 18

Investors feel twice as bad when they lose twice as much money.

Back 18

False

Front 19

The value function in prospect theory has asymmetric characteristics.

Back 19

True

Front 20

According to prospect theory, recovery of a loss is worth more than making a similar gain in another security.

Back 20

True

Front 21

Heuristic simplification comes from the fact that the human brain uses shortcuts to avoid complicated analyses.

Back 21

True

Front 22

Familiarity bias refers to "the characteristics of something we know being projected onto something we do not know."

Back 22

False

Front 23

The 1/n heuristic refers to the tendency to do nothing.

Back 23

False

Front 24

For many investors, the strongest reference point and anchoring point is the purchase price.

Back 24

True

Front 25

Regret of omission refers to disappointment from taking an action.

Back 25

False

Front 26

According to the disposition effect, investors will sell the stock with a gain to trigger a feeling of pride.

Back 26

True

Front 27

In behavioral portfolio theory, diversification comes from investment goal diversification rather than from purposeful asset diversification.

Back 27

True

Front 28

The brain uses mental accounting to follow the progress of investing because interaction among assets in different accounts is fairly easy.

Back 28

False

Front 29

According to investor overconfidence, investors attribute their success to good luck while attributing their loss to the lack of skill.

Back 29

False

Front 30

The level of an investor's overconfidence increases after experiencing a loss.

Back 30

False

Front 31

Cognitive dissonance is the feeling caused by a conflict between perception and reality.

Back 31

True

Front 32

Investors need to follow buy/sell recommendations most of the times because it is made by professionals who beat the market more often than not.

Back 32

False

Front 33

Myopic loss aversion causes people to be particularly sensitive to short-term losses.

Back 33

True