Investment and Risk Management Past Paper PDF

**Investment and Risk Management 2024-2025** **Tutorial 2 -- Concept of Market Efficiency and Behavioral Finance** 1. In an efficient market, the change in a company's share price is *most likely* the result of: A. insiders' private information. A. the previous day's change...

**Investment and Risk Management 2024-2025** **Tutorial 2 -- Concept of Market Efficiency and Behavioral Finance** 1. In an efficient market, the change in a company's share price is *most likely* the result of: A. insiders' private information. A. the previous day's change in stock price. A. new information coming into the market. 1. Regulation that restricts some investors from participating in a market will *most likely*: A. impede market efficiency. A. not affect market efficiency. A. contribute to market efficiency. 1. With respect to efficient market theory, when a market allows short selling, the efficiency of the market is *most likely* to: A. increase. A. decrease. A. remain the same. 1. Which of the following regulations will *most likely* contribute to market efficiency? Regulatory restrictions on: A. short selling. A. foreign traders. A. insiders trading with nonpublic information. 1. Which of the following market regulations will *most likely* impede market efficiency? A. Restricting traders' ability to short sell. A. Allowing unrestricted foreign investor trading. A. Penalizing investors who trade with nonpublic information. 1. If markets are efficient, the difference between the intrinsic value and market value of a company's security is: A. negative. A. zero. A. positive. 1. The intrinsic value of an undervalued asset is: A. less than the asset's market value. A. greater than the asset's market value. A. the value at which the asset can currently be bought or sold. 1. The market value of an undervalued asset is: A. greater than the asset's intrinsic value. A. the value at which the asset can currently be bought or sold. A. equal to the present value of all the asset's expected cash flows. 1. With respect to the efficient market hypothesis, if security prices reflect *only* past prices and trading volume information, then the market is: A. weak-form efficient. A. strong-form efficient. A. semi-strong-form efficient. 1. Which one of the following statements *best* describes the semi-strong form of market efficiency? A. Empirical tests examine the historical patterns in security prices. A. Security prices reflect all publicly known and available information. A. Semi-strong-form efficient markets are not necessarily weak-form efficient. 1. If markets are semi-strong efficient, standard fundamental analysis will yield abnormal trading profits that are: A. negative. A. equal to zero. A. positive. 1. If prices reflect all public and private information, the market is *best* described as: A. weak-form efficient. A. strong-form efficient. A. semi-strong-form efficient. 1. If markets are semi-strong-form efficient, then passive portfolio management strategies are *most likely* to: A. earn abnormal returns. A. outperform active trading strategies. A. underperform active trading strategies. 1. If a market is semi-strong-form efficient, the risk-adjusted returns of a passively managed portfolio relative to an actively managed portfolio are *most likely*: A. lower. A. higher. A. the same. 1. Technical analysts assume that markets are: A. weak-form efficient. A. weak-form inefficient. A. semi-strong-form efficient. 1. Fundamental analysts assume that markets are: A. weak-form inefficient. A. semi-strong-form efficient. A. semi-strong-form inefficient. 1. If a market is weak-form efficient but semi-strong-form inefficient, then which of the following types of portfolio management is *most likely* to produce abnormal returns? A. Passive portfolio management. A. Active portfolio management based on technical analysis. A. Active portfolio management based on fundamental analysis. 1. An increase in the time between when an order to trade a security is placed and when the order is executed *most likely* indicates that market efficiency has: A. decreased. A. remained the same. A. increased. **The following information relates to Questions 19-25** Tiffany Jordan is a hedge fund manager with a history of outstanding performance. For the past 10 years, Jordan's fund has used an equity market neutral strategy (long/short strategy that strives to eliminate market risk; i.e., beta should be zero) which has proved to be effective as a result of Jordan's hard work. An equity market neutral strategy normally generates large daily trading volume and shifts in individual security positions. Jordan's reputation has grown over the years as her fund has consistently beaten its benchmark. Employee turnover on Jordan's team has been high; she has a tendency to be quick to blame, and rarely gives credit to team members for success. During the past twelve months, her fund has been significantly underperforming against its benchmark. One of Jordan's junior analysts, Jeremy Tang, is concerned about the underperformance and notes the following: Tang is worried that the portfolio may be in violation of the fund's Investment Policy Statement (IPS). Tang brings this to Jordan's attention during a regular weekly team meeting. Jordan dismisses Tang's analysis and tells the team not to worry because she knows what she is doing. Jordan indicates that since she believes the pricing misalignment will correct itself, the portfolio will not be able to take advantage of the reversion to the mean if she sells certain losing positions. She reassures the team that this strategy has performed well in the past and that the markets will revert and the fund's returns will return to normal levels. Tang tactfully suggests that the team review the fund's IPS together, and Jordan interrupts him and reminds the team that she has memorized the IPS by heart. Tang contemplates his next step. He is concerned that Jordan is displaying behavioral biases which are affecting the fund's performance. 1. By taking credit for successes but assigning blame for failures, Jordan is *most likely* demonstrating: A. loss-aversion bias. A. self-attribution bias. A. illusion of knowledge bias. 1. Which of Tang's observations is *least likely* to be the consequence of Jordan demonstrating loss-aversion bias? A. Observation 1. A. Observation 2. A. Observation 3. 2. Which of Jordan's actions *least* supports that she may be affected by the illusion of control bias? A. Her dismissal of Tang's analysis. A. Her routine of holding weekly team meetings. A. Her comment on market turnaround and current holdings. 3. How does Jordan *most likely* demonstrate loss-aversion bias? A. Telling the team not to worry. A. Reducing the portfolio turnover this year. A. Deciding to hold the losing positions until they turn around. 4. Which of the following emotional biases has Jordan *most* *likely* exhibited? A. Endowment. A. Regret aversion. A. Overconfidence. 5. Which one of the following biases did Jordan *not* demonstrate? A. Self-attribution. A. Representativeness. A. Illusion of knowledge. 6. Which of Tang's findings is *not* a typical consequence of self-control bias? A. Failure to explore other portfolio opportunities. A. Asset allocation imbalance problems in the portfolio. A. A higher risk profile in the portfolio due to pursuit of higher returns.