Question 1

The most common measure of __________ is the spread between the number of stocks which advance in price and the number of stocks which decline in price.
A) market breadth
B) market volume
C) odd-lot trading
D) short interest

Accepted Answer

Market breadth is a measure of the overall strength or weakness of a market by analyzing the number of stocks which advance or decline in price. This is commonly measured through an index like the Advance-Decline Line, which subtracts the number of declining stocks from the number of advancing stocks.

Question 2

An investor needs cash to pay some hospital bills.He is willing to use his dividend income to pay the bills but he will not sell any stock to do so.He is engaging in ___________.
A) overconfidence
B) representativeness
C) forecast errors
D) mental accounting

Accepted Answer

The investor is engaging in mental accounting by only considering dividend income as a source of funds for the hospital bills and not considering selling stock as an option. This behavior is not rational or optimal as selling stock could potentially provide more cash than the dividend income alone.

Question 3

Contrarian investors consider a high put/call ratio as __________.
A) a bearish signal
B) a bullish signal
C) a trend confirmation signal
D) a signal to enter the options market

Accepted Answer

Contrarian investors view a high put/call ratio as a bullish signal because it indicates that there is excessive bearish sentiment in the market, suggesting a potential market bottom and an opportunity to buy.

Question 4

Even though indexing is growing in popularity only about _____ of equity in the mutual fund industry is held in indexed funds.This may be a sign that investors and managers __________.
A) 5%; are excessively conservative
B) 10%; overestimate their ability
C) 15%; suffer from framing biases
D) 20%; engage in mental accounting

Accepted Answer

The fact that only about 10% of equity in the mutual fund industry is held in indexed funds suggests that investors and managers overestimate their ability to outperform the market and may be too confident in their stock-picking abilities.

Question 5

An investor holds a very conservative portfolio invested for retirement but she takes some extra cash she earned from her year-end bonus and buys gold futures.She appears to be engaging in ___________.
A) overconfidence
B) representativeness
C) forecast errors
D) mental accounting

Accepted Answer

The investor appears to be engaging in mental accounting by treating her bonus cash differently from her other retirement investments and investing it in gold futures.

Question 6

Which of the following is not a sentiment indicator?
A) Confidence index
B) Short interest
C) Odd-lot trading
D) Put-call ratio

Accepted Answer

The odd-lot trading is not a sentiment indicator. Sentiment indicators measure the overall attitude or feeling of investors towards a particular security or the overall market. The confidence index, short interest, and put-call ratio are all sentiment indicators commonly used by investors and analysts.

Question 7

If investors overweight recent performance in forecasting the future they are exhibiting _______.
A) representativeness bias
B) framing error
C) memory bias
D) overconfidence

Accepted Answer

The representativeness bias refers to the tendency to judge the likelihood of an event based on the similarity of past events. In this case, investors are over-relying on recent performance to predict the future, which is a form of representativeness bias. Framing error refers to how an issue is presented or framed, which can influence decision making. Memory bias refers to the distortion of memory based on past experiences. Overconfidence refers to confidence in one's decision making abilities that is not supported by evidence or reality.

Question 8

Your two best friends each tell you about a person they know who successively started a small business.That's it,you decide,if they can do it so can you.This is an example of _____________.
A) mental accounting
B) framing bias
C) conservatism
D) representativeness bias

Accepted Answer

This is an example of representativeness bias because the individual is using the experiences of their two best friends as representative of what they can achieve in starting a small business, without taking into account other factors such as their own skills, resources and market conditions.

Question 9

According to Elliot wave theory,the stock market behavior can be explained as _________________.
A) a series of medium-term wave cycles with no short-term trend
B) a series of long-term wave cycles with no short-term trend
C) a series of superimposed long-term and short-term wave cycles
D) sine and cosine functions

Accepted Answer

According to Elliot wave theory, the stock market behavior can be explained as a series of superimposed long-term and short-term wave cycles. These waves can be classified into five impulse waves and three corrective waves. This interpretation helps traders and investors identify potential market trends and forecast market movements.

Question 10

Which of the following is considered a sentiment indicator?
A) A 200-day moving average
B) Short interest
C) Credit balances in brokerage accounts
D) Relative strength

Accepted Answer

Short interest is considered a sentiment indicator because it reflects the market's sentiment towards a particular stock. When short interest is high, it suggests that investors are bearish on a stock's prospects, while low short interest indicates a more bullish sentiment. The other options listed are technical indicators or measures of market activity, not sentiment.

Question 11

The only way for behavioral patterns to persist in prices is if ______________.
A) markets are not weak form efficient
B) there are limits to arbitrage activity
C) there are no significant trading costs
D) market psychology is inconsistent over time

Accepted Answer

Limits to arbitrage activity, such as high transaction costs or restrictions on short-selling, can prevent investors from quickly correcting mispricings based on behavioral patterns. This allows these patterns to persist in prices even in efficient markets. The other options (A, C, D) do not fully explain why behavioral patterns continue to exist in prices.

Question 12

Jill is offered a choice between receiving $50 with certainty or the proceeds from a gamble.In the gamble a fair coin is tossed and if it comes up heads Jill will receive $100,if the coin comes up tails she will receive nothing.Jill chooses the $50 instead of the gamble.Jill's behavior indicates __________________.
A) regret avoidance
B) overconfidence
C) that she has a diminishing marginal utility of wealth
D) prospect theory loss aversion

Accepted Answer

Jill's choice of the certain $50 over the gamble, which has an expected value of $50, suggests she prefers certainty and is risk-averse, indicating diminishing marginal utility of wealth.

Question 13

Trading activity and average returns in brokerage accounts tends to be _________.
A) uncorrelated
B) negatively correlated
C) positively correlated
D) positively correlated for women and negatively correlated for men

Accepted Answer

The answer of Trading activity and average returns in brokerage...

Question 14

Bill and Shelly are friends.Bill invests in a portfolio of hot stocks that almost all his friends are invested in.Shelly invests in a portfolio that is totally different from all her friends.Both Bill and Shelly's stocks fall 15%.According to regret theory _________________________________________.
A) Bill will have more regret over the loss than Shelly
B) Shelly will have more regret over the loss than Bill
C) Bill and Shelly will have equal regret over their losses
D) Bill and Shelly's risk aversion will increase in the future

Accepted Answer

According to regret theory, individuals feel more regret when their decisions deviate from the norm or the decisions of others. Since Shelly's portfolio is different from her friends', she is likely to feel more regret over the loss compared to Bill, who invested similarly to his friends.

Question 15

The ratio of the average yield on 10 top-rated corporate bonds to the average yield on 10 intermediate-grade bonds is called the __________.
A) bond price index
B) confidence index
C) relative strength index
D) trin ratio

Accepted Answer

The confidence index measures the ratio of the average yield on top-rated corporate bonds to the yield on intermediate-grade bonds, indicating investor confidence in the market.

Question 16

If investors are too slow to update their beliefs about a stock's future performance when new evidence arises they are exhibiting _______.
A) representativeness bias
B) framing error
C) conservatism
D) memory bias

Accepted Answer

Conservatism bias refers to the tendency for individuals to maintain their prior views or forecasts despite new information that should cause them to revise their views. In this case, investors are slow to update their beliefs about a stock's future performance even when new evidence arises, suggesting they are exhibiting conservatism bias.

Question 17

A trin ratio of less than 1.0 is considered as a __________.
A) bearish signal
B) bullish signal
C) bearish signal by some technical analysts and as a bullish signal by other technical analysts
D) trend reversal signal

Accepted Answer

A trin ratio of less than 1.0 indicates that more volume is going into advancing stocks than declining ones, which is generally considered a bullish signal.

Question 18

Which one of the following focuses more on past price movements of a firm's stock than on the underlying determinants of its future profitability?
A) Credit analysts
B) Fundamental analysts
C) Systems analysts
D) Technical analysts

Accepted Answer

Technical analysts use past price movements to identify trends and forecast future price movements, whereas fundamental analysts focus on the underlying determinants of a company's future profitability, such as financial statements and industry trends. Credit analysts analyze a company's ability to pay back debt, and systems analysts design and optimize computer systems.

Question 19

Conventional finance theory assumes investors are _______ and behavioral finance assumes investors are _______.
A) rational; irrational
B) irrational; rational
C) greedy; philanthropic
D) philanthropic; greedy

Accepted Answer

Conventional finance theory assumes investors are rational and make informed and logical decisions based on available information. On the other hand, behavioral finance assumes investors are irrational and make decisions based on emotions, heuristics, biases, and other psychological factors.

Question 20

In the context of a point and figure chart,a horizontal band of Xs and Os is a _____________.
A) buy signal
B) sell signal
C) congestion area
D) trend reversal

Accepted Answer

A horizontal band of Xs and Os represents a congestion area in point and figure charts, indicating a period of indecision or a lack of clear trend. It neither signals a buy nor a sell signal, nor a trend reversal.

Quiz 9: Behavioral Finance and Technical Analysis

The most common measure of __________ is the spread between the number of stocks which advance in price and the number of stocks which decline in price.

An investor needs cash to pay some hospital bills.He is willing to use his dividend income to pay the bills but he will not sell any stock to do so.He is engaging in ___________.

Contrarian investors consider a high put/call ratio as __________.

Even though indexing is growing in popularity only about _ of equity in the mutual fund industry is held in indexed funds.This may be a sign that investors and managers ______.

An investor holds a very conservative portfolio invested for retirement but she takes some extra cash she earned from her year-end bonus and buys gold futures.She appears to be engaging in ___________.

Which of the following is not a sentiment indicator?

If investors overweight recent performance in forecasting the future they are exhibiting _______.

Your two best friends each tell you about a person they know who successively started a small business.That's it,you decide,if they can do it so can you.This is an example of _____________.

According to Elliot wave theory,the stock market behavior can be explained as _________________.

Which of the following is considered a sentiment indicator?

The only way for behavioral patterns to persist in prices is if ______________.

Trading activity and average returns in brokerage accounts tends to be _________.

Bill and Shelly are friends.Bill invests in a portfolio of hot stocks that almost all his friends are invested in.Shelly invests in a portfolio that is totally different from all her friends.Both Bill and Shelly's stocks fall 15%.According to regret theory _________________________________________.

The ratio of the average yield on 10 top-rated corporate bonds to the average yield on 10 intermediate-grade bonds is called the __________.

If investors are too slow to update their beliefs about a stock's future performance when new evidence arises they are exhibiting _______.

A trin ratio of less than 1.0 is considered as a __________.

Which one of the following focuses more on past price movements of a firm's stock than on the underlying determinants of its future profitability?

Conventional finance theory assumes investors are _ and behavioral finance assumes investors are _.

In the context of a point and figure chart,a horizontal band of Xs and Os is a _____________.