SVKM’S NMIMS ‘choo! of Business Management Program: MBA. Year :Il Trimester :VI Subject :Behavioral Finance Marks:40 Date:20th March 2015 Time: 2 Hr. (1.30p.m. - 3.30p.m. ) at 0.2. answer the following a! 1 FINAL EXAMINATION (2014 - 2015) All questions are compulsory Itis a closed book, closed laptop and closed network examination. Be as precise as possible while writing theoretical answers. Discuss following questions in detail, ‘What do you understand by limits free arbitrage that imposes limits of arbitrage. What do you understand by ‘low risk anomaly’? What are the reasons for such anomaly to persist? Knowing the evidence for ‘low beta-high alpha and high beta-low alpha’. What prompts/forces most of the professional fund managers to chase high beta stocks? Discuss anomaly associated with premium/discount associated with close ended funds. What are the rational explanations offered to explain discount associated with close ended funds? Are they sufficient? What are the alternative explanations offered to explain persistence of such anomaly? Explain how 1) Earnings forecasting errors 2}stop loss triggers 3) margin calls 4) short selling constraints explain post earnings announcement drift, short term momentum and long term reversals in stock returns. bitrage? Dice ‘The agenda for the discussion at a conference at PTA (Professional traders association) was to discuss the common problem faced by most of the traders associated with small profits and large losses. One of the trader mentioned-"Last year we closed 70% of the transactions with profit but loss on remaining 30% led to net losses”. You are invited to provide to explain the problem faced by the traders. Besides, you are required to explain behavioral aspects that cause such behavior. fe. 10 marks Explain Gambler's fallacy, Overconfidence, representativeness and availability & confirmation bias. How will they lead to erroneous investment decisions? 4 marks Explain “Equity premium puzzle". What are the alternative explanations explain it?2 marks Explain value function offered by prospect theory. Explain certainty effect, reflection effect and isolation effect associated with prospect theory by citing suitable examples. 2 marks “In most equity markets globally price discovery is dominated by participants with more optimistic views than those with pessimistic views” do you agree? Explain. marks