INVESTMENT AND SECURITIES MARKETS Semester 1‚ 2010 / 2011 Ms. Viet Cao Topic 2 – Formal overview of investor psychology Part 1: Heuristic – driven biases 2010 Investment & Securities Markets 2 What are heuristics ? – Trial and error rules of thumb or “mental shortcuts” to simplify complex judgment or decisions – Includes intuitive “back-of-the-envelope” mental calculations – However‚ heuristics are imperfect and often leads to errors – Investors‚ like everyone else‚ commit decision errors
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Rs 90.00 odd though you can get it at the Amul Franchisee “GOPALA” at Rs 5.00 less without the cardboard box and only Butter paper wrapping. TASTE: For whatever reason one may say but the childhood tastes we develop never change. I have travelled to various parts of the world but the taste of Amul Butter – “IT’S DIFFERENT”. The salty tinge to the taste (which is very
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Chapter 1 – Introduction • Disclosure reduce monopoly power and enables potential entrants • Moved from historical cost accounting to current cost alternatives i. Value-in-use (discounted PV of future cash flows) ii. Fair value (exit value or opportunity cost) Flow of the Contents 1. Ideal Conditions ∼ ∼ 2. Economy where firm’s future cash flows and probabilities are known Asset and liability valuation is based on expected PV of future cash flows Adverse Selection
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consequences. The failure of invariance has two factors‚ the framing of probabilities and the nonlinearity of decision weight. Formulation effects explains a change of word in the description of outcomes has easily to shift the preference from risk aversion to risk seeking‚ which is common in marketplace and in the political arena. We make choices between multiattribute options like the acceptability of a transaction or a trade. The overall value of an option is to balance of its advantages of its disadvantage
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company has realized an increase in its current ratio and a drop in its total assets turnover ratio. However‚ the company’s sales‚ quick ratio‚ and fixed assets turnover ratio have remained constant. What explains these changes? 7. If investors’ aversion to risk increased‚ would the risk premium on a high-beta stock increase more or less than that on a low-beta stock? Explain. 8. If a company’s beta were to double‚ would its expected return
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AMUL- THE TASTE OF INDIA AMUL means "priceless" in Sanskrit. The brand name "Amul‚" from the Sanskrit "Amoolya‚" was suggested by a quality control expert in Anand. Variants‚ all meaning "priceless"‚ are found in several Indian languages. Amul products have been in use in millions of homes since 1946. Amul Butter‚ Amul Milk Powder‚ Amul Ghee‚ Amulspray‚ Amul Cheese‚ Amul Chocolates‚ Amul Shrikhand‚ Amul Ice cream‚ Nutramul‚ Amul Milk and Amulya have made Amul a leading food brand in India. (Turnover:
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Risky Assets • Assume investors are risk averse • Indifference curves help select from efficient set – Description of preferences for risk and return – Portfolio combinations which are equally desirable – Greater slope implies greater the risk aversion Selecting an Optimal Portfolio of Risky Assets • Markowitz portfolio selection model – Generates a frontier of efficient portfolios which are equally good – Does not address the issue of riskless borrowing or lending – Different investors will
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CHAPTER 05 RISK AND RETURN: PAST AND PROLOGUE 1. The 1% VaR will be less than –30%. As percentile or probability of a return declines so does the magnitude of that return. Thus‚ a 1 percentile probability will produce a smaller VaR than a 5 percentile probability. 2. The geometric return represents a compounding growth number and will artificially inflate the annual performance of the portfolio. 3. No. Since all items are presented in nominal figures‚ the input should also use nominal
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. TASTE AND OTHER TALES TASTE The author and his wife‚ Mike‚ his wife and daughter and a man called Richard Pratt‚ were having dinner at Mike’s as twice before. Richard was an epicure‚ he loved food and wine. Mike always played a betting game on Richard about what wine it was and Richard had always won. The game was a pleasure for both. Mike was ready to lose the bet to prove his wine was recognized and Pratt loved showing his knowledge. That night‚ he served a Mosel wine. A very unusual
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Chapter 8 Integrative Problem Assume that you recently graduated with a major in finance‚ and you just landed a job in the trust department of a large regional bank. Your first assignment is to invest $100‚000 from an estate for which the bank is trustee. Because the estate is expected to be distributed to the heirs in approximately one year‚ you have been instructed to plan for a 1-year holding period. Furthermore‚ your boss has restricted you to the following investment alternatives‚ shown
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