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100
Reasons underlying the market inefficiency:

a. Biased investors who do not take all the publicly available information into account when making their decision

b. Noise traders

c. Rational investors attribute to the inefficiency to investor learning over time

d. Rational investors attribute the inefficiency to higher order beliefs

e. All the above
e. All the above
100
Which of the following models increases usage of current values and relevance but decreases reliability?

a. Information Approach

b. Measurement Approach

c. Historical Cost Accounting

d. Decision Theory
b. Measurement Approach
100
What are potential causes that lead to Post Announcement Drift?

a. Earnings volatility

b. Limited attention of investors

c. Investors do not anticipate inflation and effects of it on a firm’s future profits

d. All of the above
d. All of the above
200
Which of the following is not true about stock market bubbles?

a. Bubble behavior can continue for some time and is difficult to predict when it will end

b. Bubbles derive from a combination of motivated reasoning and momentum

c. Share prices rise far above fundamental values

d. Stock market bubbles is an extreme case of market volatility
b. Bubbles derive from a combination of motivated reasoning and momentum
200
Which of the behavioural finance term best describes the following: investor holds on to losing stocks and sells winning stocks; and may even purchase more of the loser security?

a. Loss aversion

b. Disposition effect

c. Representativeness

d. Overconfidence
b. Disposition effect
200
Which of the following statements is false regarding conservatism as examined by Basu in 1997:

a. It is a measurement of the correlation between net income and share returns

b. Firms performing well do not include unrealized increases in assets but firms performing poorly include decreases in the value of their assets

c. Earnings are more timely in their recognition of good performance

d. None of the above
c. Earnings are more timely in their recognition of good performance
300
Which of the following scenarios exhibit the behaviour of self attribution bias?

a. A student attributes good test scores to his own intelligence; yet when he performs badly, he blames it on the difficulty of the tests

b. An employee gets fired due to his bad work ethics whereas another employee gets hired based on pure luck

c. Investors only focus on information in the financial statements but overlook information from current news, press releases, and notes disclosed

d. A man is confident and optimistic with the good news regarding a stock he is planning to purchase but puts little emphasis on bad news from other sources
a. A student attributes good test scores to his own intelligence; yet when he performs badly, he blames it on the difficulty of the tests
300
Which of the following is true regarding market response to accruals?

a. Accruals is more persistent and reliable than cash flows

b. Share returns of high positive accrual firms tend to drift downward over time rather than fall right away

c. Share returns of high positive accrual firms drift upward

d. The more reliable the accrual component, the more investors overestimate the earnings persistence which lead to greater share mispricing
b. Share returns of high positive accrual firms tend to drift downward over time rather than fall right away
300
Which of the following is incorrect:

a. Net income only attributes to 2%-7% in explaining abnormal variability of narrow-window security returns around earnings announcement date

b. Securities markets may not be as efficient as we previously believed, therefore investors need more help in assessing future firm performance

c. Under ideal conditions, we still cannot expect net income to explain all of a security's abnormal return

d. Recognition lag lowers R^2 and ERC by waiting longer than the market before recognizing value-relevant events
c. Under ideal conditions, we still cannot expect net income to explain all of a security's abnormal return