M行为金融学试卷A答案

2011—2012学年度第二学期期末考试（A卷答案）

开课单位： 国际商学部 课程名称： 行为金融学 任课教师： 郑勇 考试类型： 闭卷 考试时间： 90 分钟

一．Differentiate the following terms/concepts: (40)

1. Miscalibration and excessive optimism

A person who suffers from miscalibration overestimates the precision of his knowledge, whereas one who suffers from excessive optimism thinks good things (e.g., succeeding in a business venture) are more likely to happen than objectively should be thought. 2. IQ and EQ

The intelligence quotient (IQ) measures a person’s intelligence, whereas the emotional quotient (EQ) measures a person’s ability to identify and manage emotional responses.

3. Good company and good stock

A good company has positive attributes such as a strong management team. A good stock is one you expect to outperform in the future. If markets are efficient there are no good or bad stocks.

4. Sensation seeking and overconfidence

Overconfidence in its various manifestations has been extensively discussed in the chapter. Sensation-seeking on the other hand is a personality trait whose four dimensions are thrill and adventure seeking (i.e., a desire to engage in thrilling and even dangerous activities); experience seeking (i.e., the desire to have new and exciting experiences, even if illegal); disinhibition (i.e., behaviors associated with a loss of social inhibitions); and boredom susceptibility (i.e., dislike of repetition of experience). 5. House money and break-even effects

The house money effect is the willingness to take greater risk with money that was recently won, whereas the break-even effect refers to an increase in risk taking after a prior loss in order to try to break even.

二. Answer the following questions:

1. Why are two people who witnessed the same event last month likely to describe it

differently today?

Memory is very imprecise. The common view that past experiences have somehow been written to the brain’s hard-drive and are then retrieved, even if at considerable effort, is not the way our brain works. In fact, memory is reconstructive.

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Therefore people in remembering some event will reconstruct it in different ways. 2. Overconfidence does not quickly dissipate via learning because of the existence of contributing biases. Explain.

Self-attribution bias, the tendency for people to attribute successes or good outcomes to their own abilities, while blaming failures on circumstances beyond their control, can lead to an increase in overconfidence. Suppose an overconfident individual observes personal performance outcomes that are logically a combination of external and internal (to the individual) forces. If things go well, the thinking will be that this is because of great ability, skill or knowledge (much more so than an objective consideration of circumstances would warrant), and the result will be an increase in overconfidence. On the other hand, adverse events, being only moderately ascribed to personal forces, will not lead to symmetric (but of opposite sign) revisions in overconfidence. As it were, people “learn” to be overconfident. Another contributing bias is hindsight bias, which pushes people into thinking that “they knew it all along.” Going hand in hand with hindsight bias is confirmation bias, the tendency to search out evidence consistent with one’s prior beliefs and to ignore conflicting data.

3. Imagine you just won a lottery with a $10 million prize. What primary emotions might you feel? (Note that the seven primary emotions generally include anger, contempt, disgust, fear, happiness, sadness, and surprise.) Describe their features, including the six used to define an emotion. Be sure to include observables. According to Elster, J. (1998), the seven primary emotions include anger, contempt, disgust, fear, happiness, sadness, and surprise. Again students’ answers may vary but they probably will identify happiness and, perhaps, surprise. They should then describe the observable features of the emotion they identify including cognitive antecedents, intentional objects, physiological arousal, physiological expressions, valence, and action tendencies.

4. In a regression of perceived long-term investment value (LTIV) on size (S), book to market (B/M), and management quality (MQ), the following coefficients (all significant) were estimated:

LTIV = -.86 + 0.15log(S) + -.11log(B/M) +.85MQ

Discuss what can be learned from this regression (which appears in Shefrin, H., and M. Statman, 1995, \"Making sense of beta, size, and book-to-market,\" Journal of Portfolio Management 21 (no. 2), 26-34). Answer:

In this regression, value as a long-term investment is regressed on size, book-to-market,

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and management quality. Management quality strongly impacts perceived investment value. This does not make sense because all positive attributes should already be embedded in stock price. Additionally, size and book-to-market, even after accounting for their impact on management quality, independently influence investment value. Big firms are viewed as good investments, and growth companies are viewed as good investments. In other words, big high-growth firms are viewed as representative of good investments. Interestingly, the empirical evidence points in the exact opposite direction. It is small-cap value firms that have historically outperformed. Indeed, the tendency for individuals to use representativeness in this context may have contributed to the small-firm and value anomalies.

5. Discuss what the evidence (using naturally-occurring data, survey data, and

experimental data) suggests about the relationship among overconfidence, trading activity, and portfolio performance. Answer:

Most of the evidence indicates that overconfidence leads to greater trading activity. It is appropriate to use the word “excessive” because this trading leads to poorer portfolio performance. The evidence is mixed on what manifestation of overconfidence (miscalibration vs. the better-than-average effect) contributes the most.

三．Calculating and explain (20)

1. P(studied|A) = P(A|studied) * [P(studied)/P(A)] = .95 * (.5 / .8) = .59375

The “sample” is that he got an A. Without knowing this you would have said the probability that he studied was .5. You rightfully shifted the probability upwards based on the sample, but you moved it too much. You should have stayed closer to the base rate, so you have committed base weight underweighting.

Another example of this, when watching sports and noticing that someone is playing better than they normally do, believes that they have permanently improved.

2. Consider two investors (A and B) with the following demand curves for a

stock:

A: p = 100 - q B: p = 150 – 2q

a.

At a price of $50, how much will A and B purchase?

Substituting $50 into the above demand functions gives us q=50 for A and q=50

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for B as well.

b. if the price falls to $30, who will increase their holdings more? Explain. Now we redo the exercise for a price of $30. Now q=70 for A and q=60 for B. To go from 50 units, A would have to buy 20 and B would have to buy 10 units.

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