Investments Chapter 9

What is the term used to describe the tendency to follow the crowd in trading behavior?

• Telephone game

• Conservatism

• Herd mentality (FOMO)

• Disposition Effect

Which bias involves only seeing successful business owners and not those who fail?

• Home country bias

• Visibility / Lucky event / Representation bias

• Overconfidence

• Mental accounting

What is the Disposition Effect in trading behavior?

• Holding on to assets from home country

• Treating all asset accounts differently

• Losing feels worse than winning

• Following the crowd

What does home country bias refer to in trading?

• Selling assets quickly

• Holding on to assets from home country

• Grouping different sectors with specific bias

• Following successful business owners

What does mental accounting involve?

• Overhead costs

• Grouping different sectors with specific bias

• Following the crowd

• Selling assets quickly

What is a characteristic of overconfidence in trading?

• Selling assets quickly

• Company does well even when information says differently

• Holding on to assets from home country

• Following the crowd

What does it mean when smart money is shorting a stock?

• It is a bullish signal

• It is a bearish signal

• It indicates overconfidence

• It shows home country bias

What is a contrarian position in trading?

• Following the crowd

• Selling assets quickly

• Going to have to sell eventually (bullish)

• Holding on to assets from home country

What is a common issue with active management in the market?

• It always outperforms the market

• It has no overhead costs

• It tends to underperform the market

• It follows the crowd

What is the impact of overhead costs on active management?

• They help outperform the market

• They have no effect

• They lead to underperformance

• They reduce visibility bias