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QUESTION 47 Which of the following investors is more likely to engage in overconfidence bias? a....

QUESTION 47

  1. Which of the following investors is more likely to engage in overconfidence bias?

    a. A pension fund manager operating within strict portfolio allocation requirements.

    b. A novice investor allocating the majority of their funds to index investing.

    c. An investor with a few years' experience selecting stocks after examining the risk and return expectations of several stocks.

    d. A fund manager with several years' experience outperforming the market.

QUESTION 48

  1. Which of the following behavioral finance errors does research indicate are likely to be made by professional money managers? (1) Herding. (2) Confirmation bias. (3) Overconfidence bias. (4) Mental accounting.

    a. 1 and 2.

    b. 1 and 4.

    c. 1 and 3.

    d. 1, 2 and 3.

Solutions

Expert Solution

d)A fund manager with several year's experience outperforming the market. He has done it many times and is very confident that he can do it again. It is a wrong assessment of the stocks based on the previous returns he gained.

It cannot be option a as the pension fund manager has strict regulations on money investor invested.So he cant decide without thinking twice.

It cannot be option b has he is a novice or inexperienced investor and he wont be able to take risk in his first attempt.He is new to the market.

It cannot be option c as he is careful investor and invests only after considering the risks and returns of the stocks he invests.

Question 48

option d , 1,2 and 3 is the answer.

Herding is blindly following the trend.

Confirmation bias is listening to only positive information about the stocks and ignoring the wrong ones.

Overconfidence bias is being overconfident that the stocks selected will give good returns.

jeff jeffy answered 4 months ago
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