行为金融学4.doc

2 | PageChapter 4: Discussion Questions and Problems 1. Differentiate the following terms/concepts:a. Momentum and reversalWith momentum we observe positive correlation in returns, whereas with reversal we observe negative correlation in returns.b. Value and growth stocksStock prices for value stocks are low relative to accounting measures such as earnings, cash flow, or book value, whereas stock prices for growth (or glamour) stocks are low relative to earnings, cash flow, and book value, at least in part because the market anticipates high future growth.c. Fundamental risk and noise-trader riskFundamental risk arises because of the potential for rational revaluation as new information arrives and noise-trader risk arises because mispricing can become more severe in the short run.d. Carve-out and stub valueA carve-out is an offering of shares in a subsidiary company. Stub value is the implied stand-alone value of the parent company without the subsidiary.2. Refer back to the set of exchange rates in the “Support 3: There are no limits to arbitrage” section earlier in the chapter. Describe a profitable arbitrage strategy if x = 105.The trick is to go the correct direction around the triangle. Since $1 should only get you 102.85, take $1 and convert to 105. Then convert to , ending up with 105/159.34=6590. Then convert to dollars: .6590/.6455=$1.02 vs. the initial dollar.3. Arbitrage is limited because the wealth of arbitrageurs is limited. Discuss this statement in the context of those who are managing their own money and those who are managing other peoples money.When you managing your own money, you are subject to fundamental risk and noise-trader risk. Plus such arbitrageurs will normally have a very limited pool of capital to use for arbitrage purposes. If you are managing other peoples money, you will often now have more capital in your control. But you will be subject to a different sort of wealth control. Because they have the power to hire and fire, your horizon is of necessity short. In fact, many who are attempting to exploit arbitrage opportunities are subject to this reality. They are managing money for individuals (e.g., those pooling their money through mutual funds or hedge funds) or institutions (such as endowments), many of whom will not have a clear idea of the issues involved. 4. What is data snooping? What sort of empirical evidence is useful for obviating this critique?It is always possible to detect correlations in data merely due to randomness. Data snooping is the act of analyzing a dataset “to death” so as to detect such correlations, which are then termed “anomalies.” To obviate this criticism, these correlations should exhibit consistency: they should hold over a number of periods, and perhaps in different countries as well.5. What are the three supports on which market efficiency rests? Why is it that only one of them is required? The three supports are investor rationality, uncorrelated errors and unlimited arbitrage. If the first holds, prices will be on average right and markets will be efficient. If the first does not hold, but the second does hold, while errors will be made, once again on average prices will be right. If the first two do not hold, but the third does hold, while prices have the potential to diverge from value because errors are often one-sided, arbitrageurs will notice such opportunities and swiftly take action so as to eliminate mispricing.2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly available website, in whole or in part.