Chapter 12 1) Explain how some of the behavioral biases discussed in the chapter might contribute to the success of technical trading rules 2) Why would an advocate of the efficient market hypothesis believe that even if many investors exhibit the behavioral biases discussed in the chapter, security prices might still be set efficiently 3) What sorts of factors might limit the ability of rational investors to take advantage of any pricing errors that result from the actions of behavioral investors 4) Even if behavioral biases do not affect equilibrium asset prices, why might it still be important for investors to be aware of them 6) Jill Davis tells her broker that she does not want to sell her stocks that are below the price she paid for them She believes that if she just holds on to them a little longer they will recover, at which time she will sell them Which behavioral characteristic is the basis for Davis's decision making A Loss aversion B Conservatism C Representativeness 8) All of the following actions are consistent with feelings of regret except A Selling losers quickly B Hiring a full service broker C Holding on to losers too long 9) Match each example to one of the following behavioral characteristics Examples Characteristics Investors are slow to update their beliefs when given new evidence Disposition effect Investors are reluctant to bear losses caused by their unconventional decisions Representativeness bias Investors exhibit less risk tolerance in their retirement accounts versus their other stock accounts Regret avoidance Investors are reluctant to sell stocks with paper losses Conservatism bias Investors disregard sample size when forming views about the future from the past Mental accounting Trading Diary Volume, Advancers, Decliners Market Dairy Issues NYSE NASDAQ Advancing 1 242 936 Declining 1,742 2,128 Unchanged 60 76 Total 3 044 3,140 Share Volume Advancing 310 019,961 790 297 188 Declining 632 127 902 1,767 059,801 Unchanged 10 145 028 13 877 189 Total 952,292,891 2,57 1,234,178 Figure 12 5 Market Diary Source The Wall Street Journal Online, January 3, 2019

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Chapter 12 1) Explain how some of the behavioral biases discussed in the chapter might contribute to the success of technical trading rules. 2) Why

Chapter 12

1) Explain how some of the behavioral biases discussed in the chapter might contribute to the success of technical trading rules.
2) Why would an advocate of the efficient market hypothesis believe that even if many investors exhibit the behavioral biases discussed in the chapter, security prices might still be set efficiently?
3) What sorts of factors might limit the ability of rational investors to take advantage of any "pricing errors" that result from the actions of "behavioral investors"?
4) Even if behavioral biases do not affect equilibrium asset prices, why might it still be important for investors to be aware of them?
6) Jill Davis tells her broker that she does not want to sell her stocks that are below the price she paid for them. She believes that if she just holds on to them a little longer they will recover, at which time she will sell them. Which behavioral characteristic is the basis for Davis's decision making?
- A. Loss aversion.
- B. Conservatism.
- C. Representativeness.
8) All of the following actions are consistent with feelings of regret except:
- A. Selling losers quickly.
- B. Hiring a full-service broker.
- C. Holding on to losers too long.
9) Match each example to one of the following behavioral characteristics.

Examples	Characteristics
Investors are slow to update their beliefs when given new evidence.	Disposition effect
Investors are reluctant to bear losses caused by their unconventional decisions.	Representativeness bias
Investors exhibit less risk tolerance in their retirement accounts versus their other stock accounts.	Regret avoidance
Investors are reluctant to sell stocks with "paper" losses.	Conservatism bias
Investors disregard sample size when forming views about the future from the past.	Mental accounting

Trading Diary: Volume, Advancers, Decliners Market Dairy Issues NYSE NASDAQ Advancing 1.242 936 Declining 1,742 2,128 Unchanged 60 76 Total 3.044 3,140 Share Volume Advancing 310.019,961 790.297.188 Declining 632.127.902 1,767.059,801 Unchanged 10.145.028 13.877.189 Total 952,292,891 2,57 1,234,178 Figure 12.5 Market Diary Source: The Wall Street Journal Online, January 3, 2019