Equity Investments - Equity Investments Section 1
81. Some observed anomalies that are not violations of market efficiency could rather be:
- Option : A
- Explanation : Some observed anomalies are not violations of market efficiency, but rather are the result of statistical methodologies used to detect the anomalies. As a result, if the methodologies are corrected, most of these anomalies disappear.
- Option : A
- Explanation : According to the loss aversion arguments, investors dislike losses more than they like comparable gains.
- Option : A
- Explanation : Representativeness is where investors assess new information and probabilities of outcomes based on similarity to the current state or to a familiar classification.
- Option : A
- Explanation : This behavioral bias is an example of an information cascade wherein the transmission of information is from those participants who act first and whose decisions influence the decisions of others. The behavior of informed traders acting first and uninformed traders imitating the informed traders is consistent with rationality. The imitation trading by the uninformed traders helps the market incorporate relevant information and improves market efficiency
- Option : C
- Explanation : This behavioral bias is an example of an information cascade wherein the transmission of information is from those participants who act first (i.e. you) and whose decisions influence the decisions of others (your friends). The behavior of informed traders acting first and uninformed traders imitating the informed traders is consistent with rationality. The imitation trading by the uninformed traders helps the market incorporate relevant information and improves market efficiency.
