Assignment - Assignment Behavioral Finance Course Code...

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Assignment Behavioral Finance Course Code: 6314M0202 University of Amsterdam Block II, Fall 2012 Your names: Your UvA student numbers:
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Assignment Behavioral Finance University of Amsterdam Block II, Fall 2012 November 27, 2012 Dear students, The assignment - like the exam - has 10 questions worth 10 points each. In addition, there is one bonus question (Question 11) which can further increase the grade. For the assignment you need to work in groups of two. So make sure to fill in names and student numbers of both students. You need to submit the filled-in cover sheet plus the answers to the questions. The answer to the questions may not be longer than 10 lines, except for question 9 and 10. Good luck! Question 1 Explain the notions of (over)confidence and (over)optimism as they are typically used in Behavioral Eco- nomics and Finance. Can there be a situation in which an individual is both overconfident and pessimistic or optimistic and underconfident? If so, give an example of such a situation. Question 2 There is much evidence that CEOs (or more generally, individuals that have attained high positions in their careers) exhibit overconfidence. Give two different explanations for this fact. According to these explanations, is it desirable from a shareholder’s perspective to have an overconfident CEO? Question 3 If your answer to the last sentence of Question 2 is yes, can you think of reasons why overconfidence is detrimental to shareholder value. If your answer is no, can you think of reasons why overconfidence is beneficial to shareholder value? More generally, are there positions in a company that are better staffed with optimists or confident people and others that are better staffed with pessimists or realists? 2
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Question 4 The below graph shows a histogram of the difference between the actual earnings per share and the median analyst forecast (the earnings surprise) for a large sample of US firms. Comment on the shape of the distribution with respect to symmetry, (non-)normality, etc. Would you expect such a distribution of
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