chapter 9

Question 1

1) Models of financial markets that emphasize psychological factors affecting investor behavior are called ________.

Answer 1

D) behavioral finance

Question 2

2) The TRIN statistic is a ________ indicator.

Answer 2

A) sentiment

Question 3

3) The put/call ratio is a ________ indicator.

Answer 3

A) sentiment

Question 4

4) Relative strength is ________ indicator.

Answer 4

C) a technical

Question 5

5) Short interest is a ________ indicator.

Answer 5

A) sentiment

Question 6

6) Moving averages are ________ indicators.

Answer 6

C) trend

Question 7

7) Market breadth is a ________ indicator.

Answer 7

C) technical

Question 8

8) The cumulative tally of the number of advancing stocks minus declining stocks is called the ________.

Answer 8

A) market breadth

Question 9

9) A high amount of short interest is typically considered as a ________ signal, and contrarians may consider it as a ________ signal.

Answer 9

A) bearish; bullish

Question 10

10) Technical analysis focuses on ________.

Answer 10

B) finding repeating trends and patterns in prices

Question 11

11) Behaviorists point out that even if market prices are ________, there may be ________.

Answer 11

A) distorted; limited arbitrage opportunities

Question 12

12) According to market technicians, it is time to sell stock in a head-and-shoulders formation when ________.

Answer 12

B) the price index pierces the right shoulder

Question 13

13) When a stock price breaks through the moving average from below, this is considered to be ________.

Answer 13

C) a bullish signal

Question 14

14) When the stock price falls below a moving average, a possible conclusion is that ________.

Answer 14

B) market momentum has become negative

Question 15

15) Following a period of falling prices, the moving average will ________.

Answer 15

B) be above the current price

Question 16

16) A moving average of stock prices ________.

Answer 16

C) is less volatile than the actual prices

Question 17

17) When the housing bubble burst in 2007, it set off the worst financial crisis ________.

Answer 17

D) in 75 years

Question 18

18) A support level is ________.

Answer 18

B) a level below which the market is unlikely to fall

Question 19

19) According to Kondratieff, the macro economy moves in a series of waves that recur at intervals of approximately ________.

Answer 19

D) 50 years

Question 20

20) According to Elliot’s wave theory, stock market behavior can be explained as ________.

Answer 20

C) a series of superimposed long-term and short-term wave cycles

Question 21

21) Conventional finance theory assumes investors are ________, and behavioral finance assumes investors are ________.

Answer 21

A) rational; irrational

Question 22

22) The only way for behavioral patterns to persist in prices is if ________.

Answer 22

B) there are limits to arbitrage activity

Question 23

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

Answer 23

C) congestion area

Question 24

24) Even though indexing is growing in popularity, only about ________ of equity in the mutual fund industry is held in indexed funds.

Answer 24

B) 25%; overestimate their ability

Question 25

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

Answer 25

C) conservatism

Question 26

26) If investors overweight recent performance in forecasting the future, they are exhibiting ________.

Answer 26

A) representativeness bias

Question 27

27) Trading activity and average returns in brokerage accounts tend to be ________.

Answer 27

B) negatively correlated

Question 28

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

Answer 28

D) representativeness bias

Question 29

29) Which of the following is not a sentiment indicator?

Answer 29

C) relative strength

Question 30

30) Which of the following is considered a sentiment indicator?

Answer 30

B) short interest

Question 31

31) 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 ________.

Answer 31

D) mental accounting

Question 32

32) Which of the following analysts focus more on past price movements of a firm's stock than on the underlying determinants of its future profitability?

Answer 32

D) technical analysts

Question 33

33) A TRIN ratio of greater than 1 is considered a ________.

Answer 33

A) bearish signal

Question 34

34) Contrarian investors consider a high put/call ratio a ________.

Answer 34

B) bullish signal

Question 35

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

Answer 35

B) confidence index

Question 36

36) 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 ________.

Answer 36

D) mental accounting

Question 37

37) 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 the portfolios of all her friends. Both Bill's and Shelly's stocks fall 15%. According to regret theory, ________.

Answer 37

B) Shelly will have more regret over the loss than Bill

Question 38

38) The most common measure of ________ is the spread between the number of stocks that advance in price and the number of stocks that decline in price.

Answer 38

A) market breadth

Question 39

39) Jill is offered a choice between receiving $50 with certainty or possibly receiving 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 ________.

Answer 39

C) that she has a diminishing marginal utility of wealth

Question 40

40) When the market breaks through the moving average line from below, a technical analyst would probably suggest that it is a good time to ________.

Answer 40

A) buy the stock

Question 41

41) If you believed in the reversal effect, you should ________.

Answer 41

B) buy stocks this period that performed poorly last period

Question 42

42) According to technical analysts, a shift in market fundamentals will ________.

Answer 42

B) lead to a gradual price change that can be recognized as a trend

Question 43

43) According to market technicians, a TRIN statistic of less than 1 is considered a ________.

Answer 43

B) bullish signal

Question 44

44) It is difficult to test the Kondratieff wave theory because ________.

Answer 44

C) only two independent data points are generated each century

Question 45

45) A ________ is a value above which it is difficult for the market to rise.

Answer 45

B) resistance level

Question 46

46) A tool that can help identify the direction of a stock's price is:
A) Prospect theory
B) Framing
C) A moving average
D) Conservatism

Answer 46

C

Question 47

47) If the utility you derive from your next dollar of wealth increases by less than a loss of a dollar reduces it, you are exhibiting:
A) Loss aversion
B) Regret avoidance
C) Mental accounting
D) Framing bias

Answer 47

A

Question 48

48) In technical analysis, a value below which the market is relatively unlikely to fall is:
A) Book value
B) Resistance level
C) Support level
D) The Dow line

Answer 48

C

Question 49

49) A possible limit on arbitrage activity that may allow behavioral biases to persist is:
A) Technical trends in prices
B) Momentum effects
C) Fundamental risk
D) Trend reversals

Answer 49

C

Question 50

50) If you are not a contrarian, you consider a high put/call ratio to be a:
A) Bearish signal
B) Trend confirmation signal
C) Signal to enter the options market

Answer 50

A