Question
Behavioural finance: In each point below, is the statement/conclusion true or false ? Briefly (in 1-3 sentences), justify your answers. a) A high price-dividend ratio
Behavioural finance:
In each point below, is the statement/conclusion true or false? Briefly (in 1-3 sentences), justify your answers.
a) A high price-dividend ratio (above 50) on the aggregate stock market means that there is an irrational bubble. [7 marks]
b) In mainstream finance models, individuals perfectly smooth consumption across states. [7 marks]
c) Surveys of investor expectations of US stock market returns provide evidence against rational explanations of the predictability of the equity premium based on the dividend-price ratio. [7 marks]
d) The available evidence suggests that subsidies are an effective way to encourage saving for retirement. [7 marks]
e) If all individuals are rational, the Consumption Capital Asset Pricing Model (CCAPM) holds. [7 marks]
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