Question
a) Investors may have behavioural biases or imperfections in accessing new information rationally. State whether there is any imperfection or bias for each of the
a) Investors may have behavioural biases or imperfections in accessing new information rationally. State whether there is any imperfection or bias for each of the following case. If so, name the term of the bias or imperfection. (Explanation is not required).
ai) Over 70% investors would like to form their own active portfolio, and they think that their finance knowledge is better than the average. (2 marks)
aii) Peter buys stock A and sells stock B at the same time. (2 marks)
aiii) David purchased some shares of ABC Ltd. Some financial analysts mentioned that the share price of ABC Ltd would increase because of a good signal in the profitability ratios, but other financial analysts stated that the share price of the firm would decrease because of a bad signal in the liquidity ratios. David had read both reports, but he trusted only the report mentioning profitability ratios, and ignored the analysts who discussed for the liquidity ratios. (2 marks)
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