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]