投资学10版习题答案

CHAPTER12:BEHAVIORALFINANCE

ANDTECHNICALANALYSIS

PROBLEMSETS

1. Technicalanalysiscangenerallybeviewedasasearchfortrendsorpatternsinmarketprices.Technicalanalyststendtoviewthesetrendsasmomentum,orgradualadjustmentsto‘correct’prices,or,alternatively,reversalsoftrends.Anumberofthebehavioralbiasesdiscussedinthechaptermightcontributetosuchtrendsandpatterns.Forexample,aconservatismbiasmightcontributetoatrendinpricesasinvestorsgraduallytakenewinformationintoaccount,resultingingradualadjustmentofpricestowardstheirfundamentalvalues.Anotherexamplederivesfromtheconceptofrepresentativeness,whichleadsinvestorstoinappropriatelyconclude,onthebasisofasmallsampleofdata,thatapatternhasbeenestablishedthatwillcontinuewellintothefuture.Wheninvestorssubsequentlybecomeawareofthefactthatpriceshaveoverreacted,correctionsreversetheinitialerroneoustrend.

2. Evenifmanyinvestorsexhibitbehavioralbiases,securitypricesmightstillbesetefficientlyiftheactionsofarbitrageursmovepricestotheirintrinsicvalues.Arbitrageurswhoobservemispricinginthesecuritiesmarketswouldbuyunderpricedsecurities(orpossiblysellshortoverpricedsecurities)inordertoprofitfromtheanticipatedsubsequentchangesaspricesmovetotheirintrinsicvalues.Consequently,securitiespriceswouldstillexhibitthecharacteristicsofanefficientmarket.

3. Oneofthemajorfactorslimitingtheabilityofrationalinvestorstotakeadvantageofany‘pricingerrors’thatresultfromtheactionsofbehavioralinvestorsisthefactthatamispricingcangetworseovertime.AnexampleofthisfundamentalriskistheapparentongoingoverpricingoftheNASDAQindexinthelate1990s.Relatedfactorsaretheinherentcostsandlimitsrelatedtoshortselling,whichrestricttheextenttowhicharbitragecanforceoverpricedsecurities(orindexes)tomovetowardstheirfairvalues.Rationalinvestorsmustalsobeawareoftheriskthatanapparentmispricingis,infact,aconsequenceofmodelrisk;thatis,theperceivedmispricingmaynotberealbecausetheinvestorhasusedafaultymodeltovaluethesecurity.

4. Therearetworeasonswhybehavioralbiasesmightnotaffectequilibriumassetprices:first,behavioralbiasesmightcontributetothesuccessoftechnicaltradingrulesaspricesgraduallyadjusttowardstheirintrinsicvalues,andsecond,theactionsofarbitrageursmightmovesecuritypricestowardstheirintrinsicvalues.Itmightbeimportantforinvestorstobeawareofthesebiasesbecauseeitherofthesescenariosmightcreatethepotentialforexcessprofitsevenifbehavioralbiasesdonotaffectequilibriumprices.

Inaddition,aninvestorshouldbeawareofhispersonalbehavioralbiases,evenifthosebiasesdonotaffectequilibriumprices,tohelpavoidsomeoftheseinformationprocessingerrors(e.g.overconfidenceorrepresentativeness).

5. Efficientmarketadvocatesbelievethatpubliclyavailableinformation(and,foradvocatesofstrong-formefficiency,eveninsiderinformation)is,atanypointintime,reflectedinsecuritiesprices,andthatpriceadjustmentstonewinformationoccurveryquickly.Consequently,pricesareatfairlevelssothatactivemanagementisveryunlikelytoimproveperformanceabovethatofabroadlydiversifiedindexportfolio.Incontrast,advocatesofbehavioralfinanceidentifyanumberofinvestorerrorsininformationprocessinganddecisionmakingthatcouldresultinmispricingofsecurities.However,thebehavioralfinanceliteraturegenerallydoesnotprovideguidanceastohowtheseinvestorerrorscanbeexploitedtogenerateexcessprofits.Therefore,intheabsenceofanyprofitablealternatives,evenifsecuritiesmarketsarenotefficient,theoptimalstrategymightstillbeapassiveindexingstrategy.

6. a.Davisuseslossaversionasthebasisforherdecisionmaking.Sheholdsontostocksthataredownfromthepurchasepriceinthehopesthattheywillrecover.Sheisreluctanttoacceptaloss.

7. a.Shrumrefusestofollowastockaftershesellsitbecauseshedoesnotwanttoexperiencetheregretofseeingitrise.Thebehavioralcharacteristicusedforthebasisforherdecisionmakingisthefearofregret.

8. a.Investorsattempttoavoidregretbyholdingontolosershopingthestockswillrebound.Ifthestockreboundstoitsoriginalpurchaseprice,thestockcanbesoldwithnoregret.Investorsalsomaytrytoavoidregretbydistancingthemselvesfromtheirdecisionsbyhiringafull-servicebroker.

9. a.iv

b.iii

c.v

d.i

e.ii

10. Underlyingrisksstillexistevenduringamispricingevent.Themarketmispricingcouldgetworsebeforeitgetsbetter.Otheradverseeffectscouldoccurbeforethepricecorrectsitself(e.g.,lossofclientswithnounderstandingorappetiteformispricingopportunities).

11. Dataminingistheprocessbywhichpatternsarepulledfromdata.Technicalanalystsmustbecarefulnottoengageindataminingasgreatisthehumancapacitytodiscernpatternswherenopatternsexist.Technicalanalystsmustavoidminingdatatosupportatheoryratherthanusingdatatotestatheory.

12. Evenifpricesfollowarandomwalk,theexistenceofirrationalinvestorscombinedwiththelimitstoarbitragebyarbitrageursmayallowpersistentmispricingstobepresent.Thisimpliesthatcapitalwillnotbeallocatedefficiently—capitaldoesnotimmediatelyflowfromrelativelyunproductivefirmstorelativelyproductivefirms.

13. Trin==

$1,058,313/1,553$852,581/1,455=1.16

Thistrinratio,whichisabove1.0,wouldbetakenasabearishsignal.

14. Breadth:

Advances

Declines

NetAdvances

1,455

1,553

-98

Breadthisnegative—bearishsignal(noonewouldactuallyuseaone-daymeasure).

15. Thisexerciseislefttothestudent;answerswillvary,butsuccessfulstudentsshouldbeabletoidentifytimeperiodswhenupwardordownwardtrendsareobvious.Thisexercisealsoshowsthebenefitofhindsight,whichinvestorsdonotpossesswhenmakingcurrentdecisions.

16. Theconfidenceindexincreasesfrom(5%/6%)=0.833to(6%/7%)=0.857.

Thisindicatesslightlyhigherconfidencewhichwouldbeinterpretedbytechniciansasabullishsignal.Buttherealreasonfortheincreaseintheindexistheexpectationofhigherinflation,nothigherconfidenceabouttheeconomy.

17. Atthebeginningoftheperiod,thepriceofComputers,Inc.dividedbytheindustryindexwas0.39;bytheendoftheperiod,theratiohadincreasedto0.50.Astheratioincreasedovertheperiod,itappearsthatComputers,Inc.outperformedotherfirmsinitsindustry.Theoveralltrend,therefore,indicatesrelativestrength,althoughsomefluctuationexistedduringtheperiod,withtheratiofallingtoalowpointof0.33onday19.

18. Fivedaymovingaverages:

Days1–5:(19.63+20+20.5+22+21.13)/5=20.65

Days2–6=21.13

Days3–7=21.50

Days4–8=21.90

Days5–9=22.13

Days6–10=22.68

Days7–11=23.18

Days8–12=23.45 Sellsignal(day12price<movingaverage)

Days9–13=23.38

Days10–14=23.15

Days11–15=22.50

Days12–16=21.65

Days13–17=20.95

Days14–18=20.28

Days15–19=19.38

Days16–20=19.05

Days17–21=18.93 Buysignal(day21price>movingaverage)

Days18–22=19.28

Days19–23=19.93

Days20–24=21.05

Days21–25=22.05

Days22–26=23.18

Days23–27=24.13

Days24–28=25.13

Days25–29=26.00

Days26–30=26.80

Days27–31=27.45

Days28–32=27.80

Days29–33=27.90 Sellsignal(day33price<movingaverage)

Days30–34=28.20

Days31–35=28.45

Days32–36=28.65

Days33–37=29.05

Days34–38=29.25

Days35–39=29.00

Days36–40=28.75

19. Thispatternshowsalackofbreadth.Eventhoughtheindexisup,morestocksdeclinedthanadvanced,whichindicatesa“lackofbroad-basedsupport”fortheriseintheindex.

20.

Day

Advances

Declines

NetAdvances

CumulativeBreadth

1

906

704

202

202

2

653

986

-333

-131

3

721

789

-68

-199

4

503

968

-465

-664

5

497

1,095

-598

-1,262

6

970

702

268

-994

7

1,002

609

393

-601

8

903

722

181

-420

9

850

748

102

-318

10

766

766

0

-318

Thesignalisbearishascumulativebreadthisnegative;however,thenegativenumberisdeclininginmagnitude,indicativeofimprovement.Perhapstheworstofthebearmarkethaspassed.

21. Trin=

Thisisaslightlybullishindicator,withaveragevolumeinadvancingissuesabitgreaterthanaveragevolumeindecliningissues.

22. ConfidenceIndex=

Thisyear:Confidenceindex=(8%/10.5%)=0.762

Lastyear:Confidenceindex=(8.5%/10%)=0.850

Thus,theconfidenceindexisdecreasing.

23. Note:Inordertocreatethe26-weekmovingaveragefortheS&P500,weconvertedtheweeklyreturnstoweeklyindexvalues,withabaseof100fortheweekpriortothefirstweekofthedataset.ThefollowinggraphshowstheS&P500valuesandthe26-weekmovingaverage,beginningwiththe26thweekofthedataset.

a. Thegraphsummarizesthedataforthe26-weekmovingaverage.ThegraphalsoshowsthevaluesoftheS&P500index.

b. TheS&P500crossesthroughitsmovingaveragefrombelow14times,asindicatedinthetablebelow.Theindexincreasesseventimesinweeksfollowingacross-throughanddecreasesseventimes.

Dateof

Cross-Through

DirectionofS&P500inSubsequentWeek

05/18/01

Decrease

06/08/01

Decrease

12/07/01

Decrease

12/21/01

Increase

03/01/02

Increase

11/22/02

Increase

01/03/03

Increase

03/21/03

Decrease

04/17/03

Increase

06/10/04

Decrease

09/03/04

Increase

10/01/04

Decrease

10/29/04

Increase

04/08/05

Decrease

c. TheS&P500crossesthroughitsmovingaveragefromabove14times,asindicatedinthetablebelow.Theindexincreasesninetimesinweeksfollowingacross-throughanddecreasesfivetimes.

Dateof

Cross-Through

DirectionofS&P500inSubsequentWeek

Dateof

Cross-

Through

DirectionofS&P500inSubsequentWeek

06/01/01

Increase

03/28/03

Increase

06/15/01

Increase

04/30/04

Decrease

12/14/01

Increase

07/02/04

Decrease

02/08/02

Increase

09/24/04

Increase

04/05/02

Decrease

10/15/04

Decrease

12/13/02

Increase

03/24/05

Increase

01/24/03

Decrease

04/15/05

Increase

d. Whentheindexcrossesthroughitsmovingaveragefrombelow,asinpart(b),thisisregardedasabullishsignal.Inoursample,theindexisaslikelytoincreaseasitistodecreasefollowingsuchasignal.Whentheindexcrossesthroughitsmovingaveragefromabove,asinpart(c),thisisregardedasabearishsignal.Inoursample,contrarytothebearishsignal,theindexisactuallymorelikelytoincreasethanitistodecreasefollowingsuchasignal.

24. Inordertocreatetherelativestrengthmeasure,weconvertedtheweeklyreturnsfortheFidelityBankingFundandfortheS&P500toweeklyindexvalues,usingabaseof100fortheweekpriortothefirstweekofthedataset.Thefirstgraphshowstheresultingvalues,alongwiththerelativestrengthmeasure(×100).Thesecondgraphshowsthepercentagechangeintherelativestrengthmeasureoverfive-weekintervals.

a. Thefollowinggraphsummarizestherelativestrengthdataforthefund.

b. Overfive-weekintervals,relativestrengthincreasedbymorethan5%29times,asindicatedinthetableandgraphbelow.TheFidelityBankingFundunderperformedtheS&P500index18timesandoutperformedtheS&P500index11timesinweeksfollowinganincreaseofmorethan5%.

DateofIncrease

PerformanceofBankingFundinSubsequentWeek

DateofIncrease

PerformanceofBankingFundinSubsequentWeek

07/21/00

Outperformed

03/09/01

Outperformed

08/04/00

Outperformed

03/16/01

Underperformed

08/11/00

Underperformed

03/30/01

Underperformed

08/18/00

Outperformed

06/22/01

Underperformed

09/22/00

Outperformed

08/17/01

Underperformed

09/29/00

Underperformed

03/15/02

Outperformed

10/06/00

Underperformed

03/22/02

Underperformed

12/01/00

Underperformed

03/28/02

Outperformed

12/22/00

Underperformed

04/05/02

Outperformed

12/29/00

Outperformed

04/12/02

Underperformed

01/05/01

Underperformed

04/26/02

Outperformed

01/12/01

Underperformed

05/03/02

Underperformed

02/16/01

Underperformed

05/10/02

Underperformed

02/23/01

Outperformed

06/28/02

Underperformed

03/02/01

Underperformed

c. Overfive-weekintervals,relativestrengthdecreasesbymorethan5%15times,asindicatedinthegraphaboveandtablebelow.TheFidelityBankingFundunderperformedtheS&P500indexsixtimesandoutperformedtheS&P500indexninetimesinweeksfollowingadecreaseofmorethan5%.

DateofDecrease

PerformanceofBankingFundinSubsequentWeek

DateofDecrease

PerformanceofBankingFundinSubsequentWeek

07/07/00

Underperformed

04/16/04

Underperformed

07/14/00

Outperformed

04/23/04

Outperformed

05/04/01

Underperformed

12/03/04

Outperformed

05/11/01

Outperformed

12/10/04

Underperformed

10/12/01

Outperformed

12/17/04

Outperformed

11/02/01

Outperformed

12/23/04

Underperformed

10/04/02

Outperformed

12/31/04

Underperformed

10/11/02

Outperformed

d. Anincreaseinrelativestrength,asinpart(b)above,isregardedasabullishsignal.However,inoursample,theFidelityBankingFundismorelikelytounderperformtheS&P500indexthanitistooutperformtheindexfollowingsuchasignal.Adecreaseinrelativestrength,asinpart(c),isregardedasabearishsignal.Inoursample,contrarytothebearishsignal,theFidelityBankingFundisactuallymorelikelytooutperformtheindexincreasethanitistounderperformfollowingsuchasignal.

25. Ithasbeenshownthatdiscrepanciesofpricefromnetassetvalueinclosed-endfundstendtobehigherinfundsthataremoredifficulttoarbitragesuchasless-diversifiedfunds.

CFAPROBLEMS

1. i. MentalaccountingisbestillustratedbyStatement#3.Sampson’srequirementthathisincomeneedsbemetviainterestincomeandstockdividendsisanexampleofmentalaccounting.Mentalaccountingholdsthatinvestorssegregatefundsintomentalaccounts(e.g.,dividendsandcapitalgains),maintainasetofseparatementalaccounts,anddonotcombineoutcomes;alossinoneaccountistreatedseparatelyfromalossinanotheraccount.Mentalaccountingleadstoaninvestorpreferencefordividendsovercapitalgainsandtoaninabilityorfailuretoconsidertotalreturn.

ii. Overconfidence(illusionofcontrol)isbestillustratedbyStatement#6.Sampson’sdesiretoselectinvestmentsthatareinconsistentwithhisoverallstrategyindicatesoverconfidence.Overconfidentindividualsoftenexhibitrisk-seekingbehavior.Peoplearealsomoreconfidentinthevalidityoftheirconclusionsthanisjustifiedbytheirsuccessrate.Causesofoverconfidenceincludetheillusionofcontrol,self-enhancementtendencies,insensitivitytopredictiveaccuracy,andmisconceptionsofchanceprocesses.

iii. ReferencedependenceisbestillustratedbyStatement#5.Sampson’sdesiretoretainpoor-performinginvestmentsandtotakequickprofitsonsuccessfulinvestmentssuggestsreferencedependence.Referencedependenceholdsthatinvestmentdecisionsarecriticallydependentonthedecision-maker’sreferencepoint.Inthiscase,thereferencepointistheoriginalpurchaseprice.Alternativesareevaluatednotintermsoffinaloutcomesbutratherintermsofgainsandlossesrelativetothisreferencepoint.Thus,preferencesaresusceptibletomanipulationsimplybychangingthereferencepoint.

2. a. Frost'sstatementisanexampleofreferencedependence.Hisinclinationtoselltheinternationalinvestmentsoncepricesreturntotheoriginalcostdependsnotonlyontheterminalwealthvalue,butalsoonwhereheisnow,thatis,hisreferencepoint.Thisreferencepoint,whichisbelowtheoriginalcost,hasbecomeacriticalfactorinFrost’sdecision.

Instandardfinance,alternativesareevaluatedintermsofterminalwealthvaluesorfinaloutcomes,notintermsofgainsandlossesrelativetosomereferencepointsuchasoriginalcost.

b. Frost’sstatementisanexampleofsusceptibilitytocognitiveerror,inatleasttwoways.First,heisdisplayingthebehavioralflawofoverconfidence.Helikelyismoreconfidentaboutthevalidityofhisconclusionthanisjustifiedbyhisrateofsuccess.HeisveryconfidentthatthepastperformanceofCountryXYZindicatesfutureperformance.Behavioralinvestorscould,andoftendo,concludethatafive-yearrecordisampleevidencetosuggestfutureperformance.Second,bychoosingtoinvestinthesecuritiesofonlyCountryXYZ,Frostisalsoexemplifyingthebehavioralfinancephenomenonofassetsegregation.Thatis,heisevaluatingCountryXYZinvestmentintermsofitsanticipatedgainsorlossesviewedinisolation.

Individualsaretypicallymoreconfidentaboutthevalidityoftheirconclusionsthanisjustifiedbytheirsuccessrateorbytheprinciplesofstandardfinance,especiallywithregardtorelevanttimehorizons.Instandardfinance,investorsknowthatfiveyearsofreturnsonCountryXYZsecuritiesrelativetoallothermarketsprovidelittleinformationaboutfutureperformance.Astandardfinanceinvestorwouldnotbefooledbythis“lawofsmallnumbers.”Instandardfinance,investorsevaluateperformanceinportfolioterms,inthiscasedefinedbycombiningtheCountryXYZholdingwithallothersecuritiesheld.InvestmentsinCountryXYZ,likeallotherpotentialinvestments,shouldbeevaluatedintermsoftheanticipatedcontributiontotherisk–rewardprofileoftheentireportfolio.

c. Frost’sstatementisanexampleofmentalaccounting.Mentalaccountingholdsthatinvestorssegregatemoneyintomentalaccounts(e.g.,safeversusspeculative),maintainasetofseparatementalaccounts,anddonotcombineoutcomes;alossinoneaccountistreatedseparatelyfromalossinanotheraccount.Onemanifestationofmentalaccounting,inwhichFrostisengaging,isbuildingaportfolioasapyramidofassets,layerbylayer,withtheretirementaccountrepresentingalayerseparatefromthespeculativefund.Eachlayerisassociatedwithdifferentgoalsandattitudestowardrisk.Heismoreriskaversewithrespecttotheretirementaccountthanheiswithrespecttothespeculativefundaccount.Themoneyintheretirementaccountisadownsideprotectionlayer,designedtoavoidfuturepoverty.Themoneyinthespeculativefundaccountistheupsidepotentiallayer,designedforachanceatbeingrich.

Instandardfinance,decisionsconsidertheriskandreturnprofileoftheentireportfolioratherthananticipatedgainsorlossesonanyparticularaccount,investment,orclassofinvestments.Alternativesshouldbeconsideredintermsoffinaloutcomesinatotalportfoliocontextratherthanintermsofcontributionstoasafeoraspeculativeaccount.Standardfinanceinvestorsseektomaximizethemean-variancestructureoftheportfolioasawholeandconsidercovariancesbetweenassetsastheyconstructtheirportfolios.Standardfinanceinvestorshaveconsistentattitudestowardriskacrosstheirentireportfolio.

3. a. Illusionofknowledge:Maclinbelievesheisanexperton,andcanmakeaccurateforecastsabout,therealestatemarketsolelybecausehehasstudiedhousingmarketdataontheInternet.Hemayhaveaccesstoalargeamountofrealestate-relatedinformation,buthemaynotunderstandhowtoanalyzetheinformationnorhavetheabilitytoapplyittoaproposedinvestment.

Overconfidence:Overconfidencecausesustomisinterprettheaccuracyofourinformationandourskillinanalyzingit.MaclinhasassumedthattheinformationhecollectedontheInternetisaccuratewithoutattemptingtoverifyitorconsultothersources.Healsoassumeshehasskillinevaluatingandanalyzingtherealestate-relatedinformationhehascollected,althoughthereisnoinformationinthequestionthatsuggestshepossessessuchability.

b. Referencepoint:Maclin’sreferencepointforhisbondpositionisthepurchaseprice,asevidencedbythefactthathewillnotsellapositionforlessthanhepaidforit.Thisfixationonareferencepoint,andthesubsequentwaitingforthepriceofthesecuritytomoveabovethatreferencepointbeforesellingthesecurity,preventsMaclinfromundertakingarisk/return-basedanalysisofhisportfolioposition.

c. Familiarity:Maclinisevaluatinghisholdingofcompanystockbasedonhisfamiliaritywiththecompanyratherthanonsoundinvestmentandportfolioprinciples.Companyemployees,becauseofthisfamiliarity,mayhaveadistortedperceptionoftheirowncompany,assuminga“goodcompany”willalsobeagoodinvestment.Irrationalinvestorsbelieveaninvestmentinacompanywithwhichtheyarefamiliarwillproducehigherreturnsandhavelessriskthannonfamiliarinvestments.

Representativeness:Maclinisconfusinghiscompany(whichmaywellbeagoodcompany)withthecompany’sstock(whichmayormaynotbeanappropriateholdingforhisportfolioand/oragoodinvestment)anditsfutureperformance.Thiscanresultinemployees’overweightingtheircompanystock,therebyholdinganunderdiversifiedportfolio.

4. a. Thebehavioralfinanceprincipleofbiasedexpectations/overconfidenceismostconsistentwiththeinvestor’sfirststatement.Petriestockprovidesalevelofconfidenceandcomfortfortheinvestorbecauseofthecircumstancesinwhichsheacquiredthestockandherrecenthistorywiththereturnsandincomefromthestock.However,theinvestorexhibitsoverconfidenceinthestockgiventheneedsofherportfolio(sheisretired)andthebrevityoftherecentperformancehistory.

b. Thebehavioralfinanceprincipleofmentalaccountingismostconsistentwiththeinvestor’ssecondstatement.Theinvestorhassegregatedthemoniesdistributedfromherportfoliointotwo“accounts”:thereturnsherportfolioreceivesonthePetriestockandthereturnsontherestofherportfolio.Sheismaintainingaseparatesetofmentalaccountswithregardtothetotalfundsdistributed.Theinvestor’sspecificusesshouldbeviewedintheoverallcontextofherspendingneedsandsheshouldconsidertheriskandreturnprofileoftheentireportfolio.

5. i. Overconfidence(BiasedExpectationsandIllusionofControl):Pierceisbasingherinvestmentstrategyforsupportingherparentsonherconfidenceintheeconomicforecasts.Thisisacognitiveerrorreflectingoverconfidenceintheformofbothbiasedexpectationsandanillusionofcontrol.Pierceislikelymoreconfidentinthevalidityofthoseforecaststhanisjustifiedbytheaccuracyofpriorforecasts.Analysts’consensusforecastshaveprovenroutinelyandwidelyinaccurate.PiercealsoappearstobeoverlyconfidentthattherecentperformanceofthePogoIslandeconomyisagoodindicatoroffutureperformance.Behavioralinvestorsofte