Finance

QUESTION 1 (30 points) In the study of behavioral finance, we have identified many human behavioral biases that will affect the customers investment decision and making mistakes.

Please name 5 common behavioral biases, briefly describe the background and causes of these biases and possible solutions to deal with each. (15 Points)

Referring to the following investor case : Mr. Chan Investor risk Profile: Balanced Investor personality: Business owner Portfolio Assets: USD 20 million Investment portfolio: 70% Equities, 20% Bonds, 10% Cash Period of Scenario: year 2019-2020

Mr. Chan has investment in a balance portfolio with a strong performing year in 2019 with the above asset allocation at the end of 2019. As the equity market had one of the strongest performance year and Mr. Chan is very happy and is confidence the outlook will continue to be good. He attended investment seminar with the outlook resonate to his own view. He is approached by one of his bankers to increase weighting of Chinese Equity Portfolio he has already had.

If you are Mr. Chans wealth manager, how will you advise Mr. Chan based on the Portfolio Management theory as well as behavioral finance theory (you may refer to the market emotion cycle for some hints) 10 points

Assume Mr. Chans reference currency is USD, what will be the commonly used benchmarks for MR. Chans portfolio for comparison? 5 points