Professional Documents
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You are provided with Mr. Mathew’s trade book in accompanying excel sheet for the period from August
12, 2019 to December 24, 2019. Share your observations and analysis on systematic behavioral
pattern/biases emerging out of his trading history. Is he succumbing to any systematic errors? What are the
possible reasons explain such lack-luster trading performance. Broder markets were flattish in general
during this entire period without much volatility. (You can cover as many patterns/biases/errors as you
observe but you are required to explain each of them by highlighting a specific/set of transactions).
Q. 2 8 marks
Nifty has surpassed its Feb 2020 lifetime high and now trading at close to 13,000 levels (5% higher than its
Feb 2020 highs), historical PE Nifty is near 36 (never traded at such high multiples before). Do you think
Indian markets are in midst of a bubble? If yes, early stage or late stage? What do you understand by market
bubble? How would you predict it? What are the challenges involved in building a response strategy to a
bubble in markets given that you are sure that we are in midst of a bubble? What are the consequences of
various response strategies?
Q.3 10 marks
In a panel discussion on the launch of a book “Gurus of Chaos” discussing traits of successful fund
managers across the globe, one of the panelists suggests that the those fund managers who invests in low
beta stocks tend to generate highest alpha compared to their counterparts. Discuss ‘low risk anomaly’ and
its persistence across the global equity markets by discussing various rational/market friction based as well
as behavioral reasons. Do you think it will persist? Why? Why not?
Q. 4 7 marks
Given the following utility function faced by an individual what would be his response to following bets
offered to him? Why? (P.T.O.)
V(x) = x, if x>=0
2.25x, if x<0
Does it help ‘equity premium puzzle’ in any way? Given the relative poor returns of bonds,
why do professional institutional investors with long investment horizons (pension funds an
endowment funds still invest substantial portion in bonds? Discuss plausible explanations for
persistence of large edge of equity returns over bond returns and under-ownership of equity
and over-ownership of bonds by investors.
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