Question 10 Complete Marked out of 1.00 It has been shown that stocks with high short interest (the number of stocks sold short divided by the number of shares outstanding) underperform compared to stocks with low short interest. Specifically, if you split stocks into 10 bins by their short interest, you would observe that stocks with the highest short interest (bin 10) have lower returns compared to stocks with the lowest short interest (bin 1). This return pattern constitutes a short interest anomaly" because anyone can make money by short selling stocks in bin 10 and buying stocks in bin 1. If rational investors were trading on this anomaly, the competition between them would drive all potential profits to zero such that there could be no anomaly and no underperformance of stocks in bin 10 vs. stocks in bin 1. P Flag question What Behavioral Finance explanation can justify the persistence of short interest anomaly? Select one: O 1. If you account for the short-selling fees required to short sell stocks in bin 10, you would still be able to generate profits on this anomaly 0 2. If you account for the market risk when calculating the return difference between the stocks in bins 1 and 10, there would be no difference, i.e., no profits for arbitrageurs 3. Since this return gap between stocks in bins 1 and 10 will never close, you cannot generate any profits on this anomaly 4. None of the above