Macro behavioural finance

Which of the following in behavioural finance is in support of the Efficient Markets Hypothesis?

• Irrational euphoria causes the persistence of momentum strategies

• The habit to save in traditional Asian families leads to a predisposition for lower risk assets

• Utility maximizing individuals are likely to game the markets and use insider information for private profits

Bank runs are an example of herd behaviour. Does this support or go against the Efficient Markets Hypothesis?

• Yes, bank runs support EMH as it helps achieve equilibrium

• No, bank runs suggest market is inefficient as it is based on "follow the leader"

Institutional investors are bound by investment processes and mandates, more so than retail investors. Which of the following statements is most logical in support of the assumption of an efficient market?

• Being bound by certain processes and mandates, institutional investors are unable to maximize returns and may have to reduce returns such that the investment mandate meets the required risk level.

• Institutional investors are more likely to employ quantitative methods, objective decision processes, and will contribute to a fairer valuation of financial securities.

• Retail investors with a poor level of financial literacy may not have the capability to decipher and incorporate financial information which had occurred in the financial markets for investment decision-making.

The herd behaviour exhibited in astronomical prices of tulips during the tulip mania is an example of which of the following forms of market efficiency?

• Weak form

• Semi-strong form

• Strong form

An decrease in the complexity of the economic environment increases or decreases market efficiency?

• Increase

• Decrease

Which of the following is an assumption of behavioural finance which challenges the Efficient Markets Hypothesis?

• Perfect information

• Rational individuals

• Long term equilibrium fair value

• Herd behaviour

Which of the following biases is MOST relevant to the continued use of technical analysis?

• Information processing bias

• Belief perseverance bias

• Emotional bias

Which of the following crises is LEAST LIKELY to be caused by social media?

• Irrational bubbles

• Credit risks

• Cross-markets contagion

Which of the following represents a macro perspective of behavioural finance?

• Cognitive errors and emotional biases

• Neuro-economics and biological nature

• Bounded rationality and decision theory

• Adaptive markets hypothesis

Diagnosing biases is often seen as a way to help investors deal with irrational investment decisions. However, macro behavioural finance explanations dispute the usefulness of micro approaches. Which of the following is LEAST LIKELY a macro behavioural finance explanation to assisting financial decision making?

• Society's encouragement of greed

• Repetitiveness of human history

• Social behaviour, cultural habits and peer pressure

• Expansion of an equity index's valuation multiple on earnings surprises

• Utility maximization to increase investment returns while reducing risk