FME102: Behavioral Finance Chapter 3 - Market Efficiency

The debate about ______ efficiency has centered on a series of anomalies.

Proponents of behavioral finance suggest that these phenomena reflect ______ mispricing.

Traditionalists contend that markets are ______ in the sense that departures from efficiency are temporary, small and infrequent.

The traditional approach holds that markets are ______, whereas proponents of behavioral finance hold that in special circumstances, market prices tend to be inefficient.

Behaviorists contend that because of behavioral phenomena, there are particular circumstances in which departures from ______ are likely to be large and occur for long periods of time.

The traditional approach contends that these phenomena can be explained by compensation for ______.

Imagine the financial ______ of a privately held firm that does not plan on raising external funds for at least two years.

The traditional ______ efficient-market based advice is that managers should not try to time markets.

The IPO offer price is typically determined in a ______ meeting between the firm’s executives and the underwriters taking the firm public.

The existence of initial underpricing suggests that on average, executives agree to an offer price that is too ______, that they do not bargain hard enough.

Proponents of market efficiency suggest that long-term underperformance can be explained by factors such as ______ and book-to-market equity.

When the firm needs external funds, the executive plans to raise funds through an ______,

Behaviorists view short-term ______ as evidence against weak-form efficiency.

Analysts and investors ______ to new information.

Overconfident investors will tend to ______ to good news that occurs subsequently.

Risk aversion predisposes investors to ______ the stock at a gain relative to the original purchase price.

The stocks of firms giving rise to positive earnings surprises experience ______ after the announcement.

Aversion to sure loss predisposes investors to ______ their losers.

Exhibit 5.2 displays the general finding about the ______ underperformance for the period 1970-2002.

The shares of issuing firms began to ______ the shares of similar firms that did not issue new shares.

Over a five-year horizon, IPOs ______ by 2.4 percent a year.

Maximizing market value in the short-term might well require going ______ in a hot issue market and paying for all-star analyst coverage.

To the extent that market prices revert to ______ value in the long-term, maximizing long-term value corresponds to the conventional approach based on NPV.

The three ______ phenomena present executives with something of a dilemma.

To the extent that the impact of size, book-to-market equity, and momentum on expected returns stems from ______ mispricing rather than fundamental risk,

Managers’ forecasts exhibit ______ bias.

The evidence presented throughout this text suggests that managers do not compute ______ correctly.

Doing so requires that managers prepare unbiased forecasts of cash flow, the market risk ______, and risk.

Fox, J., “Learn to Play the ______ Game (and Wall Street Will Love You).”