1. What are several human traits that tend to affect investment decisions? 2. Wh
ID: 453566 • Letter: 1
Question
1. What are several human traits that tend to affect investment decisions?
2. Why do the supporters of behavioral finance suggest that emotions lead to inferior investment decisions?
3. What is the purpose of technical analysis, and why are those who use technical analysis referred to as chartists?
4. What changes produce a sell signal in the Dow Theory and Barron’s confidence index?
5. What is a moving average? What is the significance when a stock’s price crosses a moving average of the stock’s price?
6. What is the problem with time lags in technical analysis and why may the analysis lead to self-fulfilling predictions?
7. What is the difference between “support” and “resistance” in technical analysis?
8. Why does technical analysis receive little support from academically oriented students of investments?
(PLEASE WRITE IN WORD FORMAT NOT AN ATTACHMENT< A SENTENCE ANSWER FOR EACH IS FINE THANKS)
Explanation / Answer
(1). Several human traits that tend to effect investment decision are:
(2) The supporters of behavioural finance suggest that emotions lead to inferrior investment decisions because human make mistakes and may behave irrationally.Another reason is that investors often follow a herd mentality
(3) The purpose of technical analysis is to identify potantial investments by examining the past performance of the market or individual securities.Those who use technical analysis are reffered to as chartists because these techniques accumulate and summarize data in a variety of figures and charts.
(4) Changes that produce a sell signal in the Dow theory is when one of the averages between the industrial average and single average starts to decline after a period of rising prices and the two averages are at odds.This may suggest that the industrials may start to fall and the investors may take it as a signal to sell.The barron's confidence index is constructed of Barron's index of yiels on higher and lower quality bonds.When the yield differential is small,the ratio rises and vice-versa.When the index declines it usually means the security prices will fall and this is a signal to sell.
(5) A moving average is an average in which the most recent observation is added and the most distant observation is deleted before the average is computed.When a stock's price crosses a moving average of the stock's price this is significant because it is indicative of a change in the direction of the market.
(6) The problem with time lag in technical analysis is because under technical analysis only price chart is studied based upon the technical analysis theory.All these are studied to determine the future price movement of the shares which is not certain.Technical analysis may lead to self-fulfilling predictions as many market participants interprete the signals the same way and therefore also react in the same way.
(7) the difference between support and resistance in technical analysis is that support is the price level at which demand is thought to be strong enough to prevent the price from declining further.Whereas,resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further.
(8) Technical analysis recieve little support from academically oriented students of investment because whether technical analysis approaches to market timing and stock selection lead to superior returns is an empirical question and results suggests that investors may achieve similar or even superior results by purchasing and holding a well-diversed portfolio of securities.
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