Q1. According to behavioral finance, investors have biases that result in chronic inefficiencies in the market. In this view, which of the following is the most likely scenario? When a stock rises in price above the investors’ original target price, the investor will:

A)   hold the price target steady and sell shares only if the stock drops in price.

B)   revise the price target upwards, subsequently sell shares, and reduce risk.

C)   revise the price target upwards, buy more shares, and incur more risk.

答案和详解如下：

Q1. According to behavioral finance, investors have biases that result in chronic inefficiencies in the market. In this view, which of the following is the most likely scenario? When a stock rises in price above the investors’ original target price, the investor will:

A)   hold the price target steady and sell shares only if the stock drops in price.

B)   revise the price target upwards, subsequently sell shares, and reduce risk.

C)   revise the price target upwards, buy more shares, and incur more risk.

Correct answer is C)         

In the price target revision bias, when a stock rises in price above the investors’ original target price, the investor will revise the price target upwards, buy more shares, and incur more risk. The investor may do so because of overconfidence. If the stock price has declined, the investor may assume that the rest of the market is wrong instead of themselves, and not revise their target price.

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