Assignment Discussion Questions 1. Explain how some of the behavioral biases discussed in the chapter might contribute to the success of the technical trading rules. 2. What sorts of factors might limit the ability of rational investors to take advantage of any “pricing errors” that result from the actions of “behavioral investors”? 3. Jill Davis tells her broker that she does not want to sell her stocks that are below the price she paid for them. She believes that if she holds on to them a little longer they will recover, at which time she will sell them. What behavioral characteristics does Davis have as the basis for her decision making? a. Loss aversion b. Conservatism c. Representativeness 4. After Polly Shrum sells a stock, she avoids following it in the media. She is afraid that it may subsequently increase in price. What behavioral characteristic does Shrum have as the basis for her decision making? a. Fear of regret b. Representativeness c. Mental accounting 5. All of the following actions are consistent with feelings of regret except: a. Selling losers quickly b. Hiring a full-service broker c. Holding on to losers too long 6. What do we mean by fundamental risk, and why may such risk allow behavioral biases to persist for long periods of time? 7. What is meant by data mining, and why must technical analysts be careful not to engage in it? 8. What monetary fiscal policies might be prescribed for an economy in a deep recession? 9. If you believe the US dollar will depreciate more dramatically than other investors do, what will be your stance on investments in US auto producers? 10. Choose an industry and identify the factors that will determine its performance in the next 3 years. What is your forecast for performance in that time period/ 11. What characteristics will give firms greater sensitivity to business cycles? 12. Unlike other investors, you believe the Fed is going to loosen monetary policy. What would be your recommendations about investments in the following industries? a. Gold mining b. Construction 13. Consider two firms producing smart phones. One uses a highly automated robotics process, whereas the other uses workers on an assembly line and pays overtime when there is heavy production demand. a. Which firm will have higher profits in a recession? b. Which firm will have higher profits in a boom? c. Which firm’s stock will have a higher beta? 14. In which stage of the industry life cycle would you place the following industries? a. Oil well equipment b. Computer hardware c. Computer software d. Genetic engineering e. Railroads