CFA论坛 - Powered by Discuz! Board

Buffalo Manufacturing has just announced earnings that are 3% higher than analysts forecasts. Panda Technologies has just announced earnings that are 4% less than analysts forecasts. According to the representative heuristic description of investor behavior, what is the most likely future performance of each stock?

A)	Buffalo Manufacturing stock will outperform in the future while Panda Technologies stock will underperform in the future.

B)	Both Buffalo Manufacturing stock and Panda Technologies stock will outperform in the future.

C)	Both Buffalo Manufacturing stock and Panda Technologies stock will underperform in the future.

D)	Buffalo Manufacturing stock will underperform in the future while Panda Technologies stock will outperform in the future.

Buffalo Manufacturing stock will underperform in the future because investors will think that the good earnings announcement represents good future performance for the stock and bid the price too high. The Buffalo Manufacturing stock will become overpriced and its future performance will be weak as a result. Similarly, investors will think that the bad Panda Technologies earnings announcement represents poor future performance for the stock and force the price too low. As a result, Panda Technologies stock will become underpriced and its future performance will be strong.

Bobby Steele, a software engineer at a local firm, has been investing for the past two years and has been very successful. He shuns professional investment advice and in fact provides advice to his neighbors and friends. He states that his investment philosophy consistently outperforms the experts. Which of the following best describes the implications of Steeles investment style?

A)	Steele is likely to have low turnover in his portfolio and is likely to make unjustified bets.

B)	Steele is likely to have high turnover in his portfolio and is likely to base stock valuation on fundamental analysis.

C)	Steele is likely to have high turnover in his portfolio and is likely to make unjustified bets.

D)	Steele is likely to have low turnover in his portfolio and is likely to base stock valuation on fundamental analysis.

Steele is an overconfident investor. As a result, he will have high turnover in his portfolio because he will believe that he can accurately forecast the future performance of stocks. He will also make bets that are unjustified because he does not understand that he does not possess all the information necessary to form unbiased projections.

Bison Services announced their third quarter earnings last week. The earnings were 6% greater than expected. Jill Hoover and Charles Kershaw are both following the stock. Hoover is an overconfident investor. Kershaw is a stock analyst who uses anchoring to form his expectations of earnings. Which of the following is the most likely scenario in the future?

A)	Hoover will be pleased by the subsequent movements in Bison stock and Kershaw will be disappointed by the subsequent movements in Bison stock.

B)	Hoover will be disappointed by the subsequent movements in Bison stock and Kershaw will be pleased by the subsequent movements in Bison stock.

C)	Both Hoover and Kershaw will be disappointed by the subsequent movements in Bison stock.

D)	Both Hoover and Kershaw will be pleased by the subsequent movements in Bison stock.

When overconfident investors revise their forecasts based on new information, they tend to overestimate the impact. As an overconfident investor, Hoover will be disappointed by the subsequent movements in Bison stock because of her initial overoptimism after the earnings announcement. Investors who use anchoring tend to underestimate the impact of new information because they are anchored in their old beliefs. Kershaw will be pleased by the subsequent movements in Bison stock because he will have initially underestimated the impact of the positive earnings announcement.

A)	noise trading.

B)	the Ebullience Cycle.

C)	convoy behavior.

D)	representativeness.

Traders who respond emotionally without fully evaluating the fundamentals are noise traders. A mass of selling in a given stock after a piece of bad news is an example of herding, or convoy, mentality. Representativeness is the process by which investors make decisions based on past performance. Such thinking often leads to overreaction to both good and bad news. The Ebullience Cycle suggests that investors do not evaluate their portfolios during down markets. In this instance, we do not know if the market is going down, but we do know that a lot of investors are selling off their Baker holdings. As such, The Ebullience Cycle does not explain the price action.

Lang's strategy is formulaic, adjusting the portfolio to match a set allocation mix. Shifters tend to react to non-market-related news, and Lang has shown little interest in such news. She is also not a valuator, because her rebalancing has nothing to do with her opinion about whether the market is cheap or rich. In addition, the adjective rigid doesn't really apply to valuators, because assessing valuation is by nature a subjective act. Holders don't usually rebalance.

A)	The "ceteris-paribus" defense.

B)	The "single predictor" defense.

C)	The "almost right" defense.

D)	The "it didn't happen yet" defense.

By admitting his mistake but reiterating other projections, Cambridge used the "single predictor" defense, inferring that a problem with one of his forecasts does not call the validity of other forecasts into question.

A)	"In this trading strategy, Cambridge did not provide us with a plan for diversifying away the fundamental risk."

B)	"How do we know the new, lower price isn't accurate? Perhaps the profit shortfall could affect Glenbrook's cash flows."

C)	"Good Eats is a much smaller, financially weaker company. Its risk profile is different than that of Glenbrook."

D)	"Trading and borrowing costs will erode any potential profits from this trading strategy."

While Cambridge indeed provided no way to diversify away the fundamental risk, that is not a weakness in this particular strategy, or for any such trading strategy. Fundamental risk cannot be diversified away, and the only way to avoid it is not to trade securities. The other three arguments represent valid concerns.

A)	overconfident in her ability to predict stock movements.

B)	a beta grazer.

C)	a risk-averse arbitrageur.

anchored.

While Lang may be overconfident in her belief that Cambridge is wrong, nothing in her words or actions suggest she is overconfident in her ability to predict stock movements. In general, efficient market proponents aren't likely to make bold predictions regarding individual stocks. Lang's reluctance to accept advice from Cambridge suggests she doubts his (or anybody's) ability to predict the movement of individual stocks. Lang is well anchored in her investment approach, and new information does not sway her opinion. We have little information about her overall risk tolerance, but what we do know suggests she is particularly averse to taking on fundamental risk in arbitrage transactions.