Equity Investments MCQ - Equity Investments Section 1

86 The behavioral finance theory which explains how investors can be slow to react to new information and continue to maintain their prior views or forecasts is most accurately described as:

Conservatism is the behavioral finance theory in which investors tend to be slow to react to new information and continue to maintain their prior views and forecasts. Narrow framing involves investors focusing on issues in isolation while representativeness involves investors assessing probabilities of outcomes depending on how similar they are to the current state.

87 Which of the following statements is/are correct?

Statement 1: The size effect and the value effect are cross-sectional anomalies in the financial market.

Statement 2: The overreaction effect and the closed end fund discount are cross-sectional anomalies in the financial market.

The size effect and the value effect are the cross-sectional anomalies in the financial market.

88 When investors ignore their own private research and/or analysis and start following other investors without any rational reason, this behavior is most likely described as:

In herding, investors ignore their private information and act
as other investors do.

89 Which of the following behavioral biases most likely causes overreaction in the market?

Overreaction in the market is most likely caused by the loss aversion.

90 Which of the following statements about the key characteristics of different types of preference shares is least accurate?

The price of convertible preference shares tends to be less volatile than their underlying common shares because they do not allow investors to share in profits of the company and the dividends on preference shares are fixed.