40 practice sets · Page 2 of 2
In behavioral finance, the "disposition effect" suggests that:
Investors ignore past investment decisions
Investors tend to sell winning investments too soon
Investors avoid diversification
Investors tend to hold losing investments too long
Which of the following is a key assumption of the Efficient Market Hypothesis (EMH) that behavioral finance challenges?
None of the above
Rational decision-making
Risk-free investing
Herd behavior
According to behavioral finance, stock market anomalies arise due to:
Rational expectations
Inefficient information processing
Government intervention
Mathematical models
In which situation does the "representativeness heuristic" occur?
Investors rely solely on recent events
Investors use statistical data for decisions
Investors judge based on stereotypes
Investors take into account historical data
What is the psychological bias that results in individuals focusing on the first piece of information they receive?
Availability Bias
Anchoring Bias
Hindsight Bias
Representativeness Bias
Which theory explains why investors exhibit risk-seeking behavior when facing potential losses?
Efficient Market Hypothesis
Prospect Theory
Heuristics Theory
Capital Asset Pricing Model (CAPM)
The tendency of people to frame outcomes in terms of potential gains rather than potential losses is associated with:
Risk Aversion
Prospect Theory
Mental Accounting
Loss Aversion
When investors ignore the probability of negative events happening because they are emotionally attached, this is known as:
Endowment Effect
Anchoring Bias
Mental Accounting
Overconfidence Bias
Which of the following is an example of a cognitive bias?
Overconfidence Bias
Herding Effect
Anchoring Bias
All of the above
The belief that a person's prior experiences have led to their success, even though no real skill is involved, is called:
Illusion of Control
Overconfidence Bias
Confirmation Bias
Status Quo Bias
According to behavioral finance, stock prices often diverge from their fundamental value due to:
Efficient market hypothesis
Psychological factors
Rational expectations
Both 1 and 3
What is the tendency for people to make judgments based on easily available information known as?
Representativeness Bias
Availability Bias
Loss Aversion
Hindsight Bias
In which scenario do people show "loss aversion"?
Avoiding risk
Preferring gains of any size
Preferring to avoid losses
Choosing higher risk for greater reward
Behavioral finance is primarily concerned with the influence of what factors?
Political factors
Psychological factors
Economic factors
Technological factors
The "mental accounting" concept is based on the idea that:
Investors view money differently depending on its source or use
Investors always make rational decisions
Money is fungible and should be treated equally
Money management is unrelated to psychology
Which bias makes investors hold on to losing investments for too long?
Disposition Effect
Mental Accounting
Endowment Effect
Loss Aversion
Which bias occurs when an investor believes that their past investment decisions were better than they were?
Hindsight Bias
Overconfidence Bias
Availability Bias
Anchoring Bias
What is the "endowment effect"?
Tendency to overvalue owned assets
Tendency to undervalue assets owned
Tendency to disregard external factors
Tendency to sell assets quickly
Which of the following is a key component of behavioral finance?
Efficient markets
Investor psychology
Mathematical models
Corporate governance
What is the study of psychological influences on people's financial decisions known as?
Financial Engineering
Behavioral Finance
Technical Analysis
Financial Management
