From Stalla, Mindy makes the point to Bob that since his software copmany has been so successful and he and she are very knowledgeable about the industry, they should invest mainly in software companies. This is an example of: a) home bias b) Representativeness C)Anchor and adjustment D)Aversion to Ambiguity Now I was torn between A or D, but figured ‘A’ had more to do with country specific, so I chose D since they ‘prefer the known to the unknown’…But it was A. b/c it’s familiarity. Now does Aversion to Ambiguity only refer to a known gain vs an uknown gain or know loss vs unknown loss???
Hmmm… I would have answered the same as you. I guess home *country* bias means that you don’t look to invest abroad. Home bias, is more for MBS and types (ok, joke). My sense on the Stalla questions is that their team does not pay that close attention to how the question can be misread. When I’m using CFAI material, I find much fewer of those kinds of ambiguities.
I won’t think D at all. I will be torn between A or B. I am leaning toward to A. Representativness is more like equating a good company to a good stock, or equation good past earning to good future growth. Home biae is sticking with what you know. A
Ok what wuld you choose for this: “Most diversified int’l portfolios have had disappointing results over the past 5 years. Dureing taht time, however, the mkt in country XYZ has outperformed all other mkts, even our own. If I do increase my int’l equity exposure, I would prefer that the entire exposure consist of securities from Country XYZ.” What Behavorial Finance Concept??? It’s Representativeness according to Stalla…I was leanign torwards Anchoring as he was basing his decision on the past performance data…but they say its Representativeness b/c he is evaluating Country XYZ investmetn in terms of its anticipated gains or losses viewed in isolation…Boy do I have some reviewing to do…
Maybe stick with the CFAI problems for this stuff.
haha…but what questions??? Well I guess the prior exams as they dont have any end of chapter problems…at least I dont recall so.
bigwilly Wrote: ------------------------------------------------------- >> > > …Boy do I have some reviewing to do… Don’t we all!!
bigwilly Wrote: ------------------------------------------------------- > Ok what wuld you choose for this: > > “Most diversified int’l portfolios have had > disappointing results over the past 5 years. > Dureing taht time, however, the mkt in country XYZ > has outperformed all other mkts, even our own. If > I do increase my int’l equity exposure, I would > prefer that the entire exposure consist of > securities from Country XYZ.” > > What Behavorial Finance Concept??? > > > Actually this is a perfect example for representativeness since your future expectations are based on the recent past. Anchoring would require disregarding new information, so if he had chosen to stay with his original allocation, I would have said anchoring since he refuses to adjust his allocation based on the new information. This is all me off-course … when it comes to this section a monkey has an equal probability of being right. > > > > > > > > > It’s Representativeness according to Stalla…I > was leanign torwards Anchoring as he was basing > his decision on the past performance data…but > they say its Representativeness b/c he is > evaluating Country XYZ investmetn in terms of its > anticipated gains or losses viewed in > isolation…Boy do I have some reviewing to do…