What are the two key assumptions of behavioral asset pricing theory?

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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What are the two key assumptions of
behavioral asset pricing theory?
I. Rational investors collect information and
compete for profits
II. Any temporary mispricing would be
arbitraged away
III. Irrationality: Investors make mistakes
when forming expectations or making
investment decisions
IV. The mispricing might not be quickly
eliminated because of limits to arbitrage
a. II and IV
b. Il and IV
c. I and II
d. I and III
Transcribed Image Text:What are the two key assumptions of behavioral asset pricing theory? I. Rational investors collect information and compete for profits II. Any temporary mispricing would be arbitraged away III. Irrationality: Investors make mistakes when forming expectations or making investment decisions IV. The mispricing might not be quickly eliminated because of limits to arbitrage a. II and IV b. Il and IV c. I and II d. I and III
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