Behavioral Finance Take Home Final Exam
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Behavioral Finance
Take Home Final Exam
Spring 2020
Rules:
1. Please turn in the exam via online submission by May 29, 11:59pm.
2. The exam is to be done individually, without discussing it (in any form, electronically or orally, or any other way) with other people enrolled in the class this quarter.
3. All sources, including the internet, can be consulted freely (with proper attribution, of course).
4. The exam is to be answered using a standard word-processing package and submitted in pdf form.
5. Please put your name (or student ID, your choice) at the top left of the first sheet.
6. Good luck!
Note: There are nine questions on the exam.
Part I (5% each, length for each answer in Part I is a maximum of one double-spaced page in 12pt)
Q1) Describe the evidence on managerial market timing (i.e., the notion that corporate managers time various actions in the financial markets to take advantage of windows of stock misvaluation). Discuss how this evidence can make you a better investor.
Q2) What evidence we have about whether there is momentum in the stock market? Summarize the possible explanations for momentum.
Q3) Argue whether the following are stock market “characteristics” or “factors”: (a) Market returns, (b) Oil prices, (c) GDP, (d) Number of option grants to CEOs.
Q4) “Analysts’ earnings growth forecasts and stock ratings do not forecast stock returns, so the market is efficient.” Based on the evidence presented in this class, do you agree or disagree with this statement? Justify your answer.
Q5) Give a brief two paragraph summary of the current financial crisis and what you think caused it. Cite two examples where you see present crisis being exacerbated by the behavioral biases we learnt in the course or where you see principles learned in the class being operational in the real world.
Q6) Your aunt has learned that you are taking investing classes at UCLA. She wants you to help her understand whether opinions in the popular media (newspapers, television) can be used to make a better investment decision. Explain what have you learned in this course that will help you to make this decision.
Part II (20% each, length for each answer in Part II is a maximum of three double-spaced pages in 12pt, no less than two).
Q7) You want to form a hedge fund (the kind that is able to take both long and short positions), and want to attract funds from clients. Document how what you learnt in the course can be used to provide an outline a comprehensive investment strategy.
Q8) Based on the evidence presented in this class, individual investors do not appear to earn superior average returns on stock market investment. How might you go about developing and marketing materials that might improve their investing performance?
Part III (30%)
Q9)
Go to money.msn.com or any other publicly available source. Check out all of the available financial information about Netflix OR Tesla (pick only one).
Please provide a discussion of whether your chosen stock might be a desirable investment over the next year. Justify your reasoning using the intuitive arguments mentioned in class. Your answer should not span more than two double-spaced pages, excluding supporting exhibits.
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