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Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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It has been shown that the amount of Google searches for a specific stock (ticker) is associated with the increased stock price for around 2 weeks and a subsequent price decline. In other words, when you observe increased Google searches for stock X today, you can predict that its price will rise in the next 2 weeks and decline afterward. Behavioral Finance posits that rational investors cannot correct the predictable return pattern above due to limits to arbitrage. Which of the following is an example of how limits to arbitrage do not allow rational investors to correct the above pattern: Select one: O 1. Rational arbitrageurs do no use Google search activities in their trading strategies 2. Rational arbitrageurs do not want to pay transaction costs because they will offset all potential profits O 3. Rational arbitrageurs do not want to bear risks associated with trading on this return pattern 4. Rational arbitrageurs also have some behavioral biases which induce them not to notice predictable return patters
Transcribed Image Text:It has been shown that the amount of Google searches for a specific stock (ticker) is associated with the increased stock price for around 2 weeks and a subsequent price decline. In other words, when you observe increased Google searches for stock X today, you can predict that its price will rise in the next 2 weeks and decline afterward. Behavioral Finance posits that rational investors cannot correct the predictable return pattern above due to limits to arbitrage. Which of the following is an example of how limits to arbitrage do not allow rational investors to correct the above pattern: Select one: O 1. Rational arbitrageurs do no use Google search activities in their trading strategies 2. Rational arbitrageurs do not want to pay transaction costs because they will offset all potential profits O 3. Rational arbitrageurs do not want to bear risks associated with trading on this return pattern 4. Rational arbitrageurs also have some behavioral biases which induce them not to notice predictable return patters
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