fme4-intro.pdf

FINMAN E2 INTRODUCTION TO BEHAVIORAL FINANCE Study online at https://quizlet.com/_fqpofd 1. WHO SAID THIS People in Traditional Finance are ra- Mier Statman tional. People in Behavioral Finance are normal. 2. People in Traditional Finance are rational 3. Peo...

FINMAN E2 INTRODUCTION TO BEHAVIORAL FINANCE Study online at https://quizlet.com/_fqpofd 1. WHO SAID THIS People in Traditional Finance are ra- Mier Statman tional. People in Behavioral Finance are normal. 2. People in Traditional Finance are rational 3. People in Behavioral Finance are normal 4. Behavioral finance as behavioral economics and is Belsky and further defined as combining the twin discipline of Gilowich (1999) psychology and economics to explain why and how people make seemingly irrational or illogical deci- sions, and why they save, invest, spend, and borrow money. 5. Behavioral finance as behavioral economics Belsky and Gilowich (1999) 6. --------- as behavioral economics and is further de- Behavioral finance fined as combining the twin discipline of psychology and economics to explain why and how people make seemingly irrational or illogical decisions, and why they save, invest, spend, and borrow money. 7. -------- tries to understand how people forget funda- Behavioral finance mentals and make investments on emotions. 8. Behavioral finance tries to understand how people for- Verma (2004) get fundamentals and make investments on emotions. 9. ------ asserts that behavioral finance is the study of the Swell (2005) influence of psychology on the behavior of financial practitioners and the subsequent effect on markets. 10. -------is the study of the influence of psychology on the behavioral finance behavior of financial practitioners and the subsequent effect on markets. 11. 2 Categories of Irrationalities 1. Investors do not always process in- formation correct- 1/7  FINMAN E2 INTRODUCTION TO BEHAVIORAL FINANCE Study online at https://quizlet.com/_fqpofd ly. 2.Even when giv- en a probabili- ty distribution of returns, investors may make incon- sistent or subopti- mal decisions. 12. Examines behaviors or biases of individual investors Behavioral Fi- that distinguish them from the rational actors envi- nance Micro sioned in classical economic theory. 13. Detects and describe anomalies in the efficient market Behavioral Fi- hypothesis that behavioral models may explain. nance Macro 14. "The Brilliant Pair Dr. Daniel Kahne- man and Dr. Amos Tversky 15. One of the oldest and most prevalent psychographic Barnewall investor models Two-Way Model 16. One of the oldest and most prevalent psychographic Barnewall investor models, based on the work of Marilyn Mac- Two-Way Model Gruder Barnewall, was intended to help investment advisors interface with clients. 17. was intended to help investment advisors interface Barnewall with clients. Two-Way Model 18. Barnewall distinguished between two relatively sim- Passive Investors ple investor types: Active Investors 19. Inherit the money, not earned Passive Preserver 20. "Worriers" Passive Preserver 21. Careful not to take excessive risk Passive Preserver 2/7  FINMAN E2 INTRODUCTION TO BEHAVIORAL FINANCE Study online at https://quizlet.com/_fqpofd 22. Family Passive Preserver 23. Do not have their ideas about investing Friedly Follower 24. They follow the lead of their friends Friedly Follower 25. education on the benefits of portfolio diversification Friedly Follower 26. "trust their gut" Independent Indi- vidualist 27. Initial information rather than corroborational Independent Indi- vidualist 28. Although they are busy people, still they will reject Independent Indi- financial Advice vidualist 29. Contrarian Independent Indi- vidualist 30. "The Most Aggressive" Active Accumula- tor 31. Strong willed and confident They always hope for Active Accumula- high return tor 32. Investment Type Direct Equity In- vestments Equity Funds Hedge Funds Bonds (Govern- ment or Corpo- rate) Derivatives Real Estate Pension Funds Gold 33. BB&K Five-Way Model ADVENTURER CELEBRITY 3/7  FINMAN E2 INTRODUCTION TO BEHAVIORAL FINANCE Study online at https://quizlet.com/_fqpofd INDIVIDUALIST GUARDIAN STRAIGHT AR- ROW 34. Adventurer Direct Equity In- vestments, Equity Funds Hedge Funds 35. Celebrity Direct Equity, Bonds Equity Funds 36. Individualist Derivatives, Direct Equity, Real Estate 37. Guardian Bonds Pension Funds Gold 38. Straight Arrow All Investments including Equity, Bonds and Gold 39. Confident AND IMPETOUS ADVENTURER 40. IMPETOUS AND ANXIOUS CELEBRITY 41. ANXIOUS AND CAREFUL GUARDIAN 42. CAREFUL AND CONFIDENT INDIVIDUALIST 43. People who are willing to put it all on one bet and go Adventurer for it because they have confidence. They are difficult to advise because they have their own ideas about investing. They are willing to take risks, and they are volatile clients from an investment counsel point of view. 4/7  FINMAN E2 INTRODUCTION TO BEHAVIORAL FINANCE Study online at https://quizlet.com/_fqpofd 44. People who are willing to put it all on one bet and go Adventurer for it because they have confidence. 45. They are difficult to advise because they have their Adventurer own ideas about investing. 46. They are willing to take risks, and they are volatile Adventurer clients from an investment counsel point of view. 47. These people like to be where the action is. They are Celebrity afraid of being left out. They really do not have their own ideas about investments. They may have their own ideas about other things in life, but not investing. As a result, they are the best prey for maximum broker turnover 48. These people like to be where the action is. Celebrity 49. They are afraid of being left out. Celebrity 50. They really do not have their own ideas about invest- Celebrity ments. 51. They may have their own ideas about other things in Celebrity life, but not investing. As a result, they are the best prey for maximum broker turnover 52. These people tend to go their own way and are typi- Individualist fied by the small business person or an independent professional, such as a lawyer, CPA, or engineer. They try to make their own decisions in life, carefully going about things, and having a certain degree of confi- dence about them, but also being careful, methodical, and analytical. These are clients whom everyone is looking for—rational investors with whom the port- fo?lio manager can talk sense 53. These people tend to go their own way and are typi- Individualist fied by the small business person or an independent professional, such as a lawyer, CPA, or engineer. 5/7  FINMAN E2 INTRODUCTION TO BEHAVIORAL FINANCE Study online at https://quizlet.com/_fqpofd 54. They try to make their own decisions in life, carefully Individualist going about things, and having a certain degree of confidence about them, but also being careful, me- thodical, and analytical. 55. These are clients whom everyone is looking for—ra- Individualist tional investors with whom the portfolio manager can talk sense 56. Typically, as people get older and begin consider- Guardian ing retirement, they approach this personality profile. They are careful and a little bit worried about their money. They recognize that they face a limited earning time span and have to preserve their assets. They are definitely not interested in volatility or excitement. Guardians lack confidence in their ability to forecast the future or to understand where to put money, so they look for guidance 57. Typically, as people get older and begin considering Guardian retirement, they approach this personality profile. 58. They are careful and a little bit worried about their Guardian money. 59. They recognize that they face a limited earning time Guardian span and have to preserve their assets. They are def- initely not interested in volatility or excitement. 60. ------- lack confidence in their ability to forecast the Guardian future or to understand where to put money, so they look for guidance 61. These people are so well balanced, they cannot be Straight Arrow placed in any specific quadrant, so they fall near the center. On average this group of clients is the average investor, a relatively balanced composite of each of the other four investor types, and by implication a 6/7  FINMAN E2 INTRODUCTION TO BEHAVIORAL FINANCE Study online at https://quizlet.com/_fqpofd group willing to be exposed to medium amounts of risk 62. These people are so well balanced, they cannot be Straight Arrow placed in any specific quadrant, so they fall near the center. 63. On average this group of clients is the average in- Straight Arrow vestor, a relatively balanced composite of each of the other four investor types, and by implication a group willing to be exposed to medium amounts of risk 7/7