a) Which of the following is(are) not a sign of investor overconfidence?

1. Investors who believe that fund managers who outperformed the market in the past few years have "hot hands"

2. Investors who trade frequently.

3. Investors who overestimates their ability to predict stock market returns.

• 1

• 3

• 1 and 2

• 1, 2, and 3

• 2

b) Which of the following statements is not true?

• Dynamic portfolio insurance only works to the extent that such strategies do not move the market.

• All of the options listed are true.

• CAPM assumes that all investors have the correct expectation of prices.

• The market cannot be efficient if irrational investors exist.