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Equity Investments Q134

0. You are a well-respected financial and a charterholder. You continuously use your skills and analytical expertise along with up-to-date information to make investment decisions. Your close friends imitate your decision and buy or sell in accordance with your investment decisions. Which of the following statements is least likely accurate with regards to the behavioral exhibited by your close friends?

  • 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.
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