Deck 14: Behavioral Finance and Technical Analysis

Question 1

Behavior finance explains dramatic price changes in securities markets to a tendency for investors to "herd."

Answer 1

True

Question 2

Acknowledging traits that affect investment behavior should lead to better investment decisions.

Answer 2

True

Question 3

Even if technical analysis is accurately predicted,commissions may consume any excess return the investor earns.

Answer 3

True

Question 4

The Dogs of the Dow strategy suggests buying the lowest dividend yields of the Dow stocks.

Question 5

An X-O chart tracks dividends and earnings.

Question 6

If a 200-day moving average equals the current market price of a stock,that suggests the stock's price will stagnate.

Question 7

Behavioral finance asserts that emotional investing produces higher returns.

Question 8

Individuals who do the opposite of what investment analysts are suggesting are "contrarians."

Question 9

If investors believe in technical analysis,its predictions may become self-fulfilling.

Question 10

Technical analysis stresses historical information and suggests that patterns of securities prices repeat.

Question 11

A "head and shoulder" pattern suggests that a stock's price will fall.

Question 12

If a stock meets a resistance level and penetrates that level,the implication is avoid the stock.

Question 13

"Resistance" for a stock suggests that supply will blunt further price increases.

Question 14

The Dow Theory considers price movements in the Dow Jones industrial and transportation averages.

Question 15

Being familiar with a company often will result in individuals not buying stock in the company for which they work.

Question 16

Behavioral finance suggests that investors may fail to sell losing positions if these investors feel the pain of regret.

Question 17

A price increase on small volume is more bullish than a price increase on large volume since fewer investors bought the stock.

Question 18

Technical analysts use financial statements as the basis for making investment decisions.

Question 19

Insider purchases of stock are considered bullish.

Question 20

According to behavioral finance,investors often select investment data that confirms a preconceived position.

Question 21

Barron's Confidence Index uses the

A) yields on high-quality stocks
B) difference in yields on stocks and bonds
C) difference in yields between high- and low-quality bonds
D) difference in yields between high- and low-quality stocks

Question 22

The Dogs of the Dow strategy

A) forecasts the direction of Dow Jones averages
B) suggests buying the Dow stocks with the highest dividend yields
C) outperforms the S&P 500
D) suggests buying the lowest-priced Dow stocks

Question 23

Behavioral finance suggests that

A) investors are not informed
B) individuals make rational investment decisions
C) investors may be subject to bias which leads to excessive buying or selling of stocks
D) emotion plays only a minor role in security selection

Question 24

Which of the following is a fundamental principle of behavioral finance?

A) the use of P/E ratios
B) the tendency to increase the amount invested after a stock's price has declined
C) selling stocks at a loss for tax purposes
D) constructing a diversified portfolio

Question 25

The technical approach suggests that future stock prices are forecasted by

A) past stock prices
B) financial ratios
C) accounting statements
D) monetary policy

Question 26

Which of the following is not used in technical analysis?

A) moving averages
B) bar graphs
C) point-and-figure charts
D) P/E ratios

Question 27

Empirical evidence

A) does not support efficient markets
B) does not support the use of technical analysis
C) cannot be applied to technical analysis
D) only supports head-and-figure charts

Question 28

If technical analysis cannot be demonstrated to produce higher returns,that is evidence supporting efficient markets.

Question 29

Long dark candlesticks suggest

A) stock prices changed dramatically
B) stock prices rose
C) the daily price change was small
D) an investor should sell short

Question 30

If a moving average of the Dow Jones industrial average crosses the Dow Jones industrial average,

A) the direction of security prices has changed
B) stock prices will stabilize
C) stock prices will go through a period of fluctuation
D) the investor should take profits

Question 31

Which of the following human emotions tend to affect investment decisions?
1)the pain of regret
2)following the crowd or "herding"
3)selective memory

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices