Reference berkdemarzo section 136 44 22 determine

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Reference: Berk/DeMarzo, Section 13.6
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IFM-02-18 44 22) Determine which of following is an example of a behavioral bias that might cause the market portfolio not to be efficient. (A) Investors are attracted to large growth stocks that receive greater news coverage. (B) Investors are attracted to investments with skewed distributions that have a small probability of an extremely high payoff. (C) The true market portfolio may be efficient, but the proxy an investor uses to mimic the market portfolio may be inaccurate. (D) Investors are exposed to significant non-tradeable risks outside their portfolio, such as human capital. (E) Investors systematically ignore positive-NPV investment opportunities.
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IFM-02-18 45 Key: A From Berk/DeMarzo p.468: “…some investors may be subject to systematic behavioral biases. For example, they may be attracted to large growth stocks that receive greater news coverage…By falling prey to these biases, these investors are holding inefficient portfolios. Thus, the answer is (A). The other answer choices are more about alternative risk preferences (B), proxy error (C), non-tradable wealth (D), or a different implication (i.e., 1 instead of 2 on p.467) of positive-alpha trading strategies (E). Reference: Berk/DeMarzo, Section 13.6
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IFM-02-18 46 23) Determine which of the following situations demonstrates evidence that is contrary to the efficient markets hypothesis.
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IFM-02-18 47 Key: B (B) is an example of evidence against the EMH (pp. 466-467). (A) is not a violation of the EMH because it occurs due to the uncertainty regarding timing or occurrence of the takeover. (C) is a prediction of the EHM so cannot be providing evidence. (D) refers to a situation where the information was not available or known prior to the event, so the EMH does not apply. (E) is also a prediction of the EMH. Reference: Berk/DeMarzo, Sections 13.5-13.6
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