Question 1

A major problem with technical trading strategies is that ________.

Accepted Answer

A)   it is very difficult to identify a true trend before the fact
B)   it is very difficult to identify the correct trend after the fact
C)   it is so easy to identify trends that all investors quickly do so
D)   Kondratieff showed that you can't identify trends without 48 to 60 years of dataE) C) and D)
F) A) and D)

Question 2

Behavioralists point out that even if market prices are ____________ there may be _______________.

Accepted Answer

A)   distorted; limited arbitrage opportunities
B)   distorted; fundamental efficiency
C)   allocationally efficient; limitless arbitrage opportunities
D)   distorted; allocational efficiencyE) B) and D)
F) B) and C)

Question 3

Which of the following is not a sentiment indicator?

Accepted Answer

A)   Confidence index
B)   Short interest
C)   Odd-lot trading
D)   Put-call ratioE) A) and D)
F) B) and C)

Question 4

An investor has her money segregated into checking,savings and investments.The allocation between each category is subjective,yet the investor spends freely from the checking account and not the others.This behavior can be explained as _______________.

Accepted Answer

A)   loss aversion
B)   mental accounting
C)   overreaction
D)   winner's curseE) A) and B)
F) A) and C)

Question 5

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

Accepted Answer

A)   representativeness bias
B)   framing error
C)   conservatism
D)   memory biasE) All of the above
F) None of the above

Question 6

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 all her friends.Both Bill and Shelly's stocks fall 15%.According to regret theory _________________________________________.

Accepted Answer

A)   Bill will have more regret over the loss than Shelly
B)   Shelly will have more regret over the loss than Bill
C)   Bill and Shelly will have equal regret over their losses
D)   Bill and Shelly's risk aversion will increase in the futureE) A) and C)
F) C) and D)

Question 7

The price of a stock fluctuates over a period of 10 days.The movement of the stock price below the 10 day minimum price of $25 triggers a rash of selling.The $25 price might now be considered the _______________.

Accepted Answer

A)   congestion area
B)   penetration point
C)   resistance level
D)   support levelE) None of the above
F) B) and D)

Question 8

Which one of the following best describes fundamental risk?

Accepted Answer

A)   A stock is overpriced but your fund does not allow you to engage in short sales.
B)   Your models indicate a stock is mispriced but you are not sure if this is a real profit opportunity or a model input error.
C)   You buy a stock that you believe is underpriced and the underpricing persists for a long time, hurting your short term results.
D)   A stock is trading in two different markets at two different prices.E) A) and B)
F) A) and C)

Question 9

The Dow Theory is a technique that attempts to identify ___________________.

Accepted Answer

A)   only long-term trends in stock market prices
B)   only short-term trends in stock market prices
C)   both long-term and short-term trends in stock market prices
D)   trends in arbitrage trading opportunitiesE) A) and D)
F) C) and D)

Question 10

On a particular day,there were odd-lot sales of 830,000 on the NYSE and 746,000 odd-lot purchases.The odd-lot trading index is __________.

Accepted Answer

A)   0.43
B)   0.90
C)   0.77
D)   1.11E) A) and B)
F) A) and C)

Question 11

A trin ratio of less than 1.0 is considered as a __________.

Accepted Answer

A)   bearish signal
B)   bullish signal
C)   bearish signal by some technical analysts and as a bullish signal by other technical analysts
D)   trend reversal signalE) A) and B)
F) B) and C)

Question 12

The Cumulative Breadth for the first two days is ___.

Accepted Answer

A)   -240
B)   -50
C)   110
D)   250E) A) and B)
F) A) and C)

Question 13

In technical analysis,__________ is a value below which the market is relatively unlikely to fall.

Accepted Answer

A)   book value
B)   resistance level
C)   support level
D)   the Dow lineE) A) and C)
F) B) and C)

Question 14

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

Accepted Answer

A)   mental accounting
B)   framing bias
C)   conservatism
D)   representativeness biasE) A) and B)
F) A) and C)

Question 15

Technical analysis focuses on _____________________.

Accepted Answer

A)   finding opportunities for risk-free investing
B)   finding repeating trends and patterns in prices
C)   changing prospects for earnings growth of particular firms or industries
D)   forecasting technical regulatory changesE) None of the above
F) A) and C)

Question 16

An important assumption underlying the use of technical analysis techniques is that ___________________.

Accepted Answer

A)   security prices adjust rapidly to new information
B)   security prices adjust gradually to new information
C)   security dealers will provide enough liquidity to keep price changes relatively small
D)   all investors have immediate and costless access to informationE) B) and C)
F) B) and D)

Question 17

The trin statistic is a ______ indicator.

Accepted Answer

A)   sentiment
B)   flow of funds
C)   market structure
D)   fundamentalE) A) and B)
F) A) and C)

Question 18

A support level is ___________________.

Accepted Answer

A)   a level beyond which the market is unlikely to rise
B)   a level below which the market is unlikely to fall
C)   an equilibrium price level justified by characteristics such as earnings and cash flows
D)   the peak of a market wave or cycleE) All of the above
F) A) and B)

Question 19

A high amount of short interest is typically considered as a __________ signal and contrarians may consider it as a _________ signal.

Accepted Answer

A)   bearish; bullish
B)   bullish; bearish
C)   bearish; false
D)   bullish; falseE) All of the above
F) A) and D)

Question 20

The advance-decline line is constructed by plotting ________________.

Accepted Answer

A)   the number of advancing stocks against the number of declining stocks
B)   the number of advancing stocks and the number of declining stocks against time
C)   the number of advancing stocks minus the number of declining stocks against time
D)   the cumulative total of advances minus declines against timeE) None of the above
F) B) and C)

Exam 9: Behavioral Finance and Technical Analysis

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

Correct AnswerverifiedShow Answer

The price of a stock fluctuates over a period of 10 days.The movement of the stock price below the 10 day minimum price of $25 triggers a rash of selling.The $25 price might now be considered the _______________.

Correct AnswerverifiedShow Answer

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

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Which one of the following best describes fundamental risk?

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Technical analysis focuses on _____________________.

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A major problem with technical trading strategies is that ________.

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A support level is ___________________.

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On a particular day,there were odd-lot sales of 830,000 on the NYSE and 746,000 odd-lot purchases.The odd-lot trading index is __________.

Correct AnswerverifiedShow Answer

An important assumption underlying the use of technical analysis techniques is that ___________________.

Correct AnswerverifiedShow Answer

In technical analysis,__________ is a value below which the market is relatively unlikely to fall.

Correct AnswerverifiedShow Answer

Behavioralists point out that even if market prices are ____________ there may be _______________.

Correct AnswerverifiedShow Answer

A high amount of short interest is typically considered as a __________ signal and contrarians may consider it as a _________ signal.

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A trin ratio of less than 1.0 is considered as a __________.

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The Dow Theory is a technique that attempts to identify ___________________.

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The advance-decline line is constructed by plotting ________________.

Correct AnswerverifiedShow Answer

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 all her friends.Both Bill and Shelly's stocks fall 15%.According to regret theory _________________________________________.

Correct AnswerverifiedShow Answer

An investor has her money segregated into checking,savings and investments.The allocation between each category is subjective,yet the investor spends freely from the checking account and not the others.This behavior can be explained as _______________.

Correct AnswerverifiedShow Answer

Which of the following is not a sentiment indicator?

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The Cumulative Breadth for the first two days is ___.

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The trin statistic is a ______ indicator.

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Behavioralists point out that even if market prices are there may be ___.

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A high amount of short interest is typically considered as a __ signal and contrarians may consider it as a _ signal.

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