1,A researcher measures the stock-market participation behavior of residents of two cities: Buffalo and Syracuse. She observes that in Buffalo, sociable and non-sociable residents have the same participation rate. But in Syracuse, non-sociable residents have a lower participation rate than other residents. Based on this information, which city do you predict has a higher stock-market participation rate? Why?

2,Over the last twenty years or so, progress in Information Technology (IT) has made it much easier and cheaper for individual investors to trade in financial markets. Most of this trend has been driven by the growth in the ability of individual investors to trade on Internet platforms; whereas, in the past they would have to initiate trades by telephone or in writing. If overconfidence is a substantial behavioral bias among individual investors, do you think this technological trend has increased or decreased the investment returns of individual investors? Why?

3,Would arbitrageurs be more effective at taking advantage of mis-pricings in the market if investors in the arbitrageurs' funds were only able to observe the performance of these funds occasionally (let's say once a quarter) instead of continuously as is true today? Why?

4,Consider a market where there are N rational traders. All of these traders have CARA preferences with risk aversion parameter . They are considering a stock that will pay a terminal dividend in the next period. The expected payoff of the dividend is $100 per share with a standard deviation of $10. Assume that the discount rate is zero. That is, don't worry about discounting future payoffs. Also, there are M irrational traders. They each will own two shares of the stock no matter what the price. a) If there are 10 shares of the stock available, solve for the equilibrium price of the stock as a function of , N and M. (You will need this equation for the next part.) But do not report that equation; instead, only provide the equilibrium price when = .5, N = 10 and M = 10 (Just the number). b) If M < 5, does an increase in risk aversion cause the equilibrium price to rise or fall? Explain the intuition of this result. c) If M > 5, does an increase in risk aversion cause the equilibrium price to rise or fall? Explain the intuition of this result.