6. Portfolio Management

Behavioral Finance — Quiz

Test your understanding of behavioral finance with 5 practice questions.

Practice Questions

Question 1

Which behavioral bias is characterized by an investor's tendency to view recent market performance as indicative of future trends, often leading to over-extrapolation of past returns?

Question 2

An investor who consistently ignores negative news about a stock they own, while actively seeking out positive articles and analyst reports, is most likely exhibiting which behavioral bias?

Question 3

The 'size effect' is a market anomaly suggesting that small-capitalization stocks tend to outperform large-capitalization stocks over extended periods. Which behavioral explanation often attributes this to investors' preference for more visible, larger companies, leading to undervaluation of smaller firms?

Question 4

Consider a financial advisor who presents two identical investment opportunities to a client. In Scenario A, the client is told there is a $70\%$ chance of gaining $10,000$. In Scenario B, the client is told there is a $30\%$ chance of losing $10,000$. If the client chooses Scenario A, this decision is best explained by which behavioral finance concept?

Question 5

Which market anomaly describes the observation that stocks with high past returns tend to continue to have high returns, and stocks with low past returns tend to continue to have low returns, over short to medium-term horizons?