CFA三級(jí)培訓(xùn)項(xiàng)目：經(jīng)典題-行為金融學(xué)（Behavioral Finance）-打印版

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TheBehavioralFinancePerspective

Case:MimiFong

?MimiFong,CFA,aprivatewealthmanagerwithanassetmanagement

firm,hasbeenaskedtomakeapresentationtohercolleagues

comparingtraditionalandbehavioralfinance.Shedecidestoenliven

herpresentationwithstatementsfromcolleaguesandclients.These

statementsareintendedtodemonstratesomekeyaspectsofand

differencesbetweentraditionalandbehavioralfinance.

?Statement1

?(fromacolleague):“Whennewinformationonacompanybecomes

available,Iadjustmyexpectationsforthatcompany’sstockbasedon

pastexperienceswithsimilarinformation.”

?(fromaclient):“Whenconsideringinvestments,Ihavealwaysliked

usinglongoptionpositions.Iliketheirrisk/returntradeoffs.My

personalestimatesoftheprobabilityofgainsseemtobehigherthan

thatimpliedbythemarketprices.Iamnotsurehowtoexplainthat,but

tomelongoptionsprovidetremendousupsidepotentialwithlittlerisk,

giventhelowprobabilityoflimitedlosses.”

?(fromaclient):“Ihavealwaysfollowedabudgetandhavebeena

disciplinedsaverfordecades.EveninhardtimeswhenIhadtoreduce

myusualdiscretionaryspending,Ialwaysmanagedtosave.”

Case:MimiFong

?Statement4

?(fromacolleague):“WhileItrytomakedecisionsanalytically,Ido

believethemarketscanbedrivenbytheemotionsofothers.SoIhave

frequentlyusedbuy/sellsignalswheninvesting.Also,my20yearsof

experiencewithmanagerswhoactivelytradeonsuchinformation

makesmethinktheyareworththefeestheycharge.”

?Statement5

?(fromacolleague):“Mostofmyclientsneedawell-informedadvisorto

analyzeinvestmentchoicesandtoeducatethemontheiropportunities.

Theyprefertobepresentedwiththreetosixviablestrategiestoachieve

theirgoals.Theyliketobeabletomatchtheirgoalswithspecific

investmentallocationsorlayersoftheirportfolio.”

Case:MimiFong

?Statement6

?(fromaclient):“Ifollowadisciplinedapproachtoinvesting.Whena

stockhasappreciatedby15percent,Isellit.Also,Isellastockwhenits

pricehasdeclinedby25percentfrommyinitialpurchaseprice.”

?Statement7

?(fromaclient):“Overall,Ihavealwaysbeenwillingtotakeasmall

chanceoflosingupto8percentoftheportfolioannually.Icanaccept

anyassetclassestomeetmyfinancialgoalsifthisconstraintis

considered.Inotherwords,anacceptableportfoliowillsatisfythe

followingcondition:Expectedreturn–1.645?Expectedstandard

deviation≥–8%.”

?Whichofthefollowingstatementsismostconsistentwithexpected

Case:MimiFong

?Solution:C

Statement3ismostconsistentwithexpectedutilitytheory.Theclient

exhibitsself-controlandisabletodeferconsumption.Thisclientis

consideringshort-termandlong-termgoalsandattemptingto

maximizethepresentvalueofutility.InStatement1,beliefsarebeing

updatedusingheuristicsratherthanBayes’formula.Statement2is

consistentwithprospecttheory;theclientisoverweightingthe

probabilityofahighfinancialimpactoutcome(gainsonoptions)and

underweightingtheprobabilityofaloss(theoptionpremiumcost).

Case:MimiFong

?Whichofthefollowingstatementsmostlikelyindicatesabeliefthat

technicalanomaliesexistinthecapitalmarkets?

?Solution:B

Statement4indicatesthebeliefthatbuy/sellsignalscanbeusedto

earnexcessreturns.

Statement4indicatesthatmarketscanbeinfluencedbytheemotions

ofothers(sentiment).Thisisconsistentwithabehavioralapproachto

assetpricingthatincludessentimentsuchasthebehavioralstochastic

discountfactor-basedassetpricingmodelproposedbyShefrin.

Case:MimiFong

B.boundedrationality.

C.mentalaccountingbias.

Case:MimiFong

?Solution:C

TheclientsdiscussedinStatement5exhibitmentalaccountingbias

becausetheyconsidertheirportfoliobymatchingitslayerstogoals.

Theclientsmaynothavetimethemselvestoexaminetheinvestment

universeandarriveatoptimalsolutions,buttheyrelyontheiradviser

todothisforthem.Thus,theydonotexhibitboundedrationality.

?TheclientofStatement6ismostlikelybehavingconsistentlywith:

A.prospecttheory.

B.expectedutilitytheory.

C.behavioralportfoliotheory.

TheclientofStatement6isbehavingconsistentlywithbehavioral

portfoliotheory.Theclientsellsandholdsastocknotbecauseofthe

stock’spotential,butratherfromafearofthestockdeclininginvalue

andgainsdissipatingandanaversiontorealizinglosses.Loss-aversion

inprospecttheoryisdiscussedfromadifferentperspective.

Case:MimiFong

?TheclientofStatement7wouldmostlikelyagreewithwhichofthe

followingstatements?

A.Istriveforamean–varianceefficientportfolio.

B.Iconstructmyportfolioinlayerstomeetmygoals.

C.Iamloss-averseandhaveavaluefunctionthatissteeperfor

lossesthangains.

Case:MimiFong

?Solution:A

Theclientisexpressingaportfoliogoalthatconsidersexpectedreturn

andstandarddeviation.Thisisconsistentwithtraditionalfinanceand

theclientislikelytopreferamean–varianceefficientportfolio.Thereis

nothinginthestatementthatindicatesloss-aversionasopposedto

risk-aversionorapreferenceforconstructingaportfolioinlayers.

TheBehavioralBiasesofIndividuals

Case:TiffanyJordan

?TiffanyJordanisahedgefundmanagerwithahistoryofoutstanding

performance.Forthepast10years,Jordan’sfundhasusedanequity

marketneutralstrategy(long/shortstrategythatstrivestoeliminate

marketrisk;i.e.,betashouldbezero)whichhasprovedtobeeffective

asaresultofJordan’shardwork.Anequitymarketneutralstrategy

normallygenerateslargedailytradingvolumeandshiftsinindividual

securitypositions.Jordan’sreputationhasgrownovertheyearsasher

fundhasconsistentlybeatenitsbenchmark.Employeeturnoveron

Jordan’steamhasbeenhigh;shehasatendencytobequicktoblame,

andrarelygivescredittoteammembersforsuccess.Duringthepast

twelvemonths,herfundhasbeensignificantlyunderperforming

againstitsbenchmark.

Case:TiffanyJordan

OneofJordan’sjunioranalysts,JeremyTang,isconcernedaboutthe

underperformanceandnotesthefollowing:

?Observation1

Certainpositionsaresignificantlyunderwater,havemuchhigherrisk

profiles,andhavebeenheldformuchlongerthannormal.

?Observation2

Thetradingvolumeofthefundhasdecreasedbymorethan40

percentduringthepastyear.

?Observation3

Theportfolioismoreconcentratedinafewsectorsthaninthepast.

Case:TiffanyJordan

?Tangisworriedthattheportfoliomaybeinviolationofthefund’s

InvestmentPolicyStatement(IPS).TangbringsthistoJordan’sattention

duringaregularweeklyteammeeting.JordandismissesTang’sanalysis

andtellstheteamnottoworrybecausesheknowswhatsheisdoing.

Jordanindicatesthatsinceshebelievesthepricingmisalignmentwill

correctitself,theportfoliowillnotbeabletotakeadvantageofthe

reversiontothemeanifshesellscertainlosingpositions.Shereassures

theteamthatthisstrategyhasperformedwellinthepastandthatthe

marketswillrevertandthefund’sreturnswillreturntonormallevels.

?Tangtactfullysuggeststhattheteamreviewthefund’sIPStogether,

andJordaninterruptshimandremindstheteamthatshehas

memorizedtheIPSbyheart.Tangcontemplateshisnextstep.Heis

concernedthatJordanisdisplayingbehavioralbiaseswhichare

affectingthefund’sperformance.

Case:TiffanyJordan

?Bytakingcreditforsuccessesbutassigningblameforfailures,Jordan

ismostlikelydemonstrating:

A.loss-aversionbias.

Case:TiffanyJordan

?Solution:B

Self-attributionisabiasinwhichpeopletakecreditforsuccessesand

assignresponsibilitiesforfailure.Jordanattributessuccessfuldecisions

toherselfwhilepoordecisionsareattributedtotheteam.Herself-

esteemaffectshowshelooksatsuccessandfailure.Self-attribution

andillusionofknowledgebiasescontributetooverconfidencebias,

whichJordanclearlydemonstrateslaterwhenshetellstheteamthat

sheknowswhatsheisdoing.

Case:TiffanyJordan

?WhichofTang’sobservationsisleastlikelytobetheconsequenceof

Jordandemonstratingloss-aversionbias?

Lossaversionbyitselfmaycauseasectorconcentration;however,a

marketneutralstrategytendstofocusonindividualstockswithout

regardtothesector.Thesectorexposurewouldbemitigatedwiththe

balancingoftheindividuallongandshortpositions.

Case:TiffanyJordan

?WhichofJordan’sactionsleastsupportsthatshemaybeaffectedby

theillusionofcontrolbias?

A.HerdismissalofTang’sanalysis.

Case:TiffanyJordan

?Solution:B

Holdingweeklyteammeetings,whichwouldindicateawillingnessto

listentofeedbackfromothers,isnotrepresentativeoftheillusionof

controlbias.Theillusionofcontrolbiasisoneinwhichpeoplebelieve

theycancontroloutcomes.Individualsexhibitingthisbiasdisplaygreat

certaintyintheirpredictionsofoutcomesofchanceeventsandignore

others’viewpoints.Jordanissurethatthemarketwillturnaroundeven

thoughitisoutofhercontrol.ShechoosesnottolistentoTangwhois

questioningherviewpoint.

Case:TiffanyJordan

B.Reducingtheportfolioturnoverthisyear.

C.Decidingtoholdthelosingpositionsuntiltheyturnaround.

Case:TiffanyJordan

?Solution:C

Jordan’sbehaviorisaclassicexampleoflossaversion:Whenaloss

occurs,sheholdsontothesepositionslongerthanwarranted.By

doingso,Jordanhasacceptedmoreriskintheportfolio.Loss-aversion

biasisoneinwhichpeopleexhibitastrongpreferencetoavoidlosses

versusachievinggains.Oneoftheconsequencesoflossaversionbias

isthatthefinancialmanagementprofessional(inthiscase,Jordan)may

holdlosinginvestmentsinthehopethattheywillreturntobreak-even

orbetter.

Case:TiffanyJordan

A.Endowment.

Case:TiffanyJordan

Jordanexhibitsoverconfidenceinseveralways.Sheignorestheanalysis

donebyTang.ThismaybebecauseJordanbelievessheissmarterand

moreinformedthanherteammembers,whichistypicalofan

individualwithanillusionofknowledgebias.Thecertaintyshe

demonstratesthatthemarketwillrevertisevidenceofoverconfidence.

Heroverconfidenceisintensifiedbyherself-attributionbias,whichis

demonstratedthroughherdealingswithherteamwhensheblames

themforlosseswhiletakingcreditforthegains.Finally,herportfolio’s

underperformanceagainstthebenchmarkisaconsequenceof

overconfidencebias.

Case:TiffanyJordan

B.Representativeness.

C.Illusionofknowledge.

?Solution:B

Biscorrect.NowhereinthescenariodiditmentionthatJordan

a

personalizedcategory.

Representativenessbiasisacognitivebiasinwhichpeopletendto

classifynewinformationbasedonpastexperiencesandclassifications.

Jordanisnotrelatingthecertaintyaboutthefutureorherdecisionto

holdlosingpositionsbacktosomethingshehasdoneorexperienced

inthepast.

Case:TiffanyJordan

?WhichofTang’sfindingsisnotatypicalconsequenceofself-control

bias?

A.Failuretoexploreotherportfolioopportunities.

B.Assetallocationimbalanceproblemsintheportfolio.

C.Ahigherriskprofileintheportfolioduetopursuitofhigher

returns.

Case:TiffanyJordan

Failingtoexploreotheropportunitiesisademonstrationofstatusquo

bias,notself-control.Self-controlbiasoccurswhenindividualsdeviate

fromtheirlong-termgoals,inthiscase,theinvestmentpolicy

statement,duetoalackofself-discipline.Jordanisnotadheringtothe

strategywhichhasbeensuccessfulinthepast.Theconsequencesof

self-controlbiasincludeacceptingtoomuchriskintheportfolio(C)

andassetallocationimbalanceproblems(B)asJordanattemptsto

generatehigherreturns.

Case:IanWang

?IanWang,CFA,isafinancialadvisoratGarnierBrothers,aUSmoney

managementfirm.Hebecameafinancialadvisorseveralyearsago

afterreceivinghisCFAcharterandcurrentlyhasthreehigh-net-worth

individualsasclients.Wangisconductinghisannualreviewofeach

client’sinvestmentpolicystatementalongwiththeirrecently

completedrisktolerancequestionnaires.Heisreflectingontheir

varyingpsychographiccharacteristics:

zMichaelPerezisasuccessful45-year-oldinvestmentbanker.Wang

describesPerezasapassiveinvestorwhoissensibleandsecure.

Perezexhibitslowtomediumrisktolerancebutoften

overestimateshisrisktolerance.Hisbiasesincludehindsight,

framing,andregretaversion.Onhisquestionnaire,Perezindicated

adesireforwealthpreservationwhilewantingtoinvesta

significantportionofhisassetsinhisemployer’sstock.

zSarahJohnsonisanindependent-minded45-year-oldrealestate

developerwhohashistoricallyutilizedsignificantamountsof

financialleverage.PriortobecomingaGarnierclient,Johnson

managedherowninvestmentportfolio,whichwasconcentratedin

justafewstocks.Johnsonexhibitsagreatdealofconfidenceand

highrisktolerance.Johnson’sbiasesincludeillusionofcontroland

overconfidence.Onherquestionnaire,Johnsonindicatedadesire

forwealthaccumulationandanaversiontoinvestinginnon-US

equities.Inaddition,sheindicatedthatherrisktolerancetowarda

stockinvestmentwouldincreasesignificantlyifsheknewthatmore

thanoneofGarnier’sresearchanalystssupportedit.

Case:IanWang

zNealPatelisa66-year-oldbillionairewhoaccumulatedhiswealth

bystartingasuccessfulretailbusiness.WangdescribesPatelas

cautiousandconcernedaboutthefuture.Patelisconcernedabout

protectinghisassetsandoftenseeksadvicefromthosehe

perceivesasbeingmoreknowledgeablethanhimself.Patelexhibits

lowrisktolerance.Patel’sbiasesincludeendowment,lossaversion,

andstatusquo.Patelindicatedthathisrisktolerancewould

increasesignificantlyifheknewthataninvestmenthadthe

unanimoussupportofGarnier’sPrivateWealthInvestment

Committee.

?TherewasonecommonobservationthatWangnotedinallthree

questionnaires:Allthreeclientsindicatedthattheywouldperceivea

companywithagoodgrowthrecordandgoodpreviousshareprice

performanceasagoodinvestment.

Case:IanWang

?OnceWangcompleteshisannualreview,herevisestheinvestment

policystatementfortheclient’sapproval.Aftertheclientapprovesthe

revisedpolicystatement,theportfoliofortheclientwillbereviewedto

determineanynecessaryreallocations.WangislimitedbyGarnierasto

thespecificinvestmentoptionsthatcanbeplacedinaclient’sportfolio;

onlysecuritiesthatarecoveredbyGarnier’sresearchanalystsand

approvedbythePrivateWealthInvestmentCommitteecanbeplaced

inaclient’sportfolio.Garnierisconfidentthatitsanalystsprovide

superiorforecastsandratingsbecausetheyuseaBayesianapproach.

Garnierisalsoproudofitsinvestmentapprovalprocess.ThePrivate

WealthInvestmentCommitteeregularlymeetstodiscussanddebate

eachsecurityandthenvotesonwhichwillbeapproved.

?Wangisscheduledtomeetwithhissupervisornextweektodiscussthe

resultsofhisannualreviewandrecommendedportfolioreallocations.

A.educatePerezonthebenefitsonportfoliodiversification.

B.limitJohnson’sroleintheinvestmentdecision-makingprocess.

C.providePatelwithdetailslikestandarddeviationsandSharpe

ratios.

Case:IanWang

?Solution:C

ThiswouldnotbeaneffectivewaytoadvisePatel.GivenPatel’s

information,heislikelytobemorereceptiveto“bigpicture”advice

thatdoesnotdwellondetailslikestandarddeviationsandSharpe

ratios.Heisemotionallybiasedandprovidingexcessivecognitive

detailwilllosehisattention.Heneedstobeconvincedofhisadvisor’s

generalphilosophyfirstandthen,astrustisgained,hewillrespondto

adviceandtakeaction.(PatelisaPassivePreserver.)

Case:IanWang

?Atraditionalrisktolerancequestionnaireismostlikelytobeeffectiveas

adiagnostictoolfor:

A.Patel.

?Solution:B

Perezexhibitsprimarilycognitiveratherthanemotionalbiases.

Althoughrisktolerancequestionnairesmayfailforemotionallybiased

individualsandworkbestforinstitutionalinvestors,theyaregenerally

effectiveforcognitive-basedindividuals.

?Whichofthefollowingbehavioralbiaseswouldbemostrelevantin

constructingaportfolioforJohnson?

A.Homebias.

?Solution:A

HomebiasisevidentinJohnson’squestionnaire.Johnsonhas

expressedanaversiontoinvestinginnon-USequities.Familiaritywith

theircountrymayleadinvestorstoownhighconcentrationsof

domesticassetsandignorethebenefitsofinternationaldiversification.

Case:IanWang

?Whichinvestmentportfolioisleastlikelytodeviatefromthemean–

varianceportfolio?

Perezhasprimarilycognitiveerrorbiases.Accordingly,itislikelythat,

witheducation,theimpactofthesebiasescanbereducedoreven

eliminated.Becausecognitivebiasesdominate,Wangshouldseekto

moderatetheeffectofthesebiasesandadoptaprogramtoreduceor

eliminatethebiasratherthanacceptthebias.Theresultwillbea

portfoliothatissimilartothemean–varianceportfolio.

Case:IanWang

?WithregardtoJohnson’scommentrelatingtoGarnier’sresearch

analysts,whichofthefollowingbiasesismostlikelytobepresentin

theanalysts’data?

A.Confirmationbias.

B.Availabilitybias.

C.Self-attributionbias.

Confirmationbias,acognitivebias,isthetendencyforpeopleto

misreadevidenceasadditionalsupportforaninitialhypothesis.

Confirmationbiasisapotentialbiasforanalystsconductingresearch.It

isaformofresolvingcognitivedissonancethatdescribedthetendency

tosearchfor,orinterpret,informationinawaythatconfirmsthe

analyst’spriorbeliefs.Theadditionalinformationmaynotbeanalyzed

inarigorousway,butitcanneverthelessappeartomakethejudgment

orforecastmorelikelybysharingsomeofitsgeneralcharacteristics.

Case:IanWang

?Patel’scommentinhisrisktolerancequestionnaireregardingthe

PrivateWealthInvestmentCommitteefailstorecognizewhichbias?

A.Socialproof.

Case:IanWang

?Solution:A

Socialproofisabeliefinwhichindividualsarebiasedtofollowthe

beliefsofagroup.ThestructureofGarnier’sPrivateWealthInvestment

Committeeindicatesthattheymaybesusceptibletoasocialproofbias.

Thecommitteemeetstodiscussanddebateeachsecurityandthen

votesonwhichwillbeapproved.Committeemembersmaywrongly

favorthejudgmentofothers,oftenwithoutbeingfullyawarethatthey

aredoingso.Theprocessofreachingaconsensuswillusuallynarrow

therangeofviews.Ifagroupdecisionprocessdoesnotencourage

privateinformationheldbyindividualcommitteememberstobe

sharedfullywithothersbeforeadecisionismade,thedecisionmayfail

tocombinethecollectivewisdomofthegroup.Thereisnoevidence

thatthiscommitteeencouragesprivateinformation.

?Theclients’commonobservationintheirrisktolerancequestionnaires

isleastlikelyindicativeof:

A.herding.

?Solution:B

Homebiasoccurswheninvestorsexhibitastrongbiasinfavorof

domesticsecuritiesinthecontextofglobalportfolios.Thereisno

evidenceofahomebiasintheclients’commonobservation.

Case:Empire&Associates

?Empire&Associates,aninvestmentmanagementfirm,hasbeenin

operationsince1974.Empireutilizesaproprietaryvaluationmodel

basedonfundamentalanalysistoselectindividualstockandbonds,

andalsoemploystechnicalanalysistohelpidentifymarketanomalies

andmomentumeffects.Theyusetheoutputoftheirfundamentaland

technicalanalysestoactivelymanageclients’accounts.Empirealso

recognizestheeffectsofinvestors’backgroundandpastexperiences

oninvestors’behaviorsanddecisionmaking,andusesabehavioral

alphaprocesstoclassifyitsclientsintobehavioralinvestortypes.

?AnthonyRodriguez,investmentadviser,hasbeentaskedwith

transitioningthreenewclients’investmentportfolios.Rodriguezhas

reviewedforeachcompletednewclientquestionnaire,current

portfolio,andsomenotesontheclient.Hepreparesthefollowing

summaries:

Case:Empire&Associates

?ChristineBlakeisa35-yearoldfree-lancewriterofseveralsuccessful

children’sbooks.Herprimarysourceofincomeisroyaltypayments.

Shehasaccumulatedaportfoliowithacurrentvalueof$3.6million.

Blakehasalwaysself-managedtheportfolioandhasconfidenceinher

investmentabilities.Blakewouldliketobeabletomakeindependent

decisionswhenopportunitiesarise.Onseveraloccasions,Blakehas

foundherselfholdingpositionswithsizablelossesandshehasbeen

reluctanttosellwhenasecuritydeclines.Becauseoftheselossesand

thegeneralsizeofherportfolio,sheisseekingprofessionalhelp.Sheis

willingtoconsiderhigherriskinvestmentsifherresearchidentifiesan

attractiveopportunity.Hercurrentportfolioconsistsof15equity

positionsofequaldollarvalue,diversifiedacrosseightindustriesand

fourdifferentcountries.

?MargaretNeilsonisa59-year-oldseniorvicepresidentofmarketing

forahighlysuccessful,plasticinjectioncorporation.Neilsonhaslittle

investmentexperienceandcurrentlyholdsan$800,000investment

portfolio.NeilsonhascometoEmpirebecause80%ofherportfoliois

investedintheplasticinjectioncorporation’ssharesthatwereobtained

throughanemployeestockownershipplan.Neilsonisnearing

retirementandisworriedaboutaweakeningeconomyandthe

potentialeffectitcouldhaveontheplasticinjectioncorporation’s

shareprice.Neilsonwishestoavoidhighrisksituations.

Case:Empire&Associates

?ThomasWilliamsonisa47-year-oldsurgeon;heisconsideredoneof

theworld’sbestinhisspecialty,andearnsseveralmilliondollarseach

year.Williamsonrecognizesthathehaslimitedinvestmentexpertise

andconsidershimselfalowtomoderaterisktaker.Williamson

establishedabrokerageaccountseveralyearsagoandfundeditwith

$4million.Hehasmadenowithdrawalsfromandnoadditional

paymentsintotheaccount.Heselectedinvestmentsbyactingonthe

adviceofotherdoctorsandfriends.Thisadviceledhimtopurchase

manypopularstocks,andhisportfolioiscurrentlyworth$3.55million.

Becausehewassobusy,hefelthemistimedbuyingandsellingstocks.

HiscurrentportfolioisconcentratedinsharesofeightUShealthcare

companies.

Case:Empire&Associates

?RodriguezismeetingwithIanCarter,portfoliomanagerandLilaSuzuki,

investmentstrategist,laterintheweektoestablishaninvestmentplan

foreachclient.RodriguezhasworkedwithCarterandSuzukionother

clientaccounts.Tofacilitatediscussionatthemeeting,Rodriguezhas

emailedthesummaryoneachclientandaskedthattheyprovidesome

preliminaryviewspriortothemeeting.

?Carterisaseniorportfoliomanagerwithanexcellentperformance

record.Hehasexpressedconcernabouttheuseofinvestortype

classificationmodelsduetotheirmanylimitations.Carterbelievesthat

Empire’sfundamentalapproachtoanalysisprovidesgreatvalue.

However,hebelievesthetechnicalanalysisdepartmentiscompatible

withsoundinvestmentpractices.

?Suzukitendstorigidlyadheretoassetselectionsbasedonthe

proprietaryvaluationmodel.Shehasstated,“Sureit’sacomplexmodel,

butitincorporateshundredsofdifferentpiecesofdatarelevanttoa

company;therefore,it’smorethoroughthananyotheranalysis.”With

respecttoEmpire’stechnicalanalysis,Suzukibelievesthatthe

identifiedopportunitiesarenot‘true’marketanomaliesbutratherthey

areassociatedwithhigherriskexposures.

Case:Empire&Associates

?Inestablishingtheportfoliosforthesenewaccounts,Rodriguezwould

liketoaddressarecentmemofromthetechnicalanalysisdepartment

thatrecommendedoverweightingclients’portfoliosinthetechnology

andconsumergoodssectors.Thememo’sconclusionstated,“These

sectorsaredepressedbelowtheirten-yearaveragelevels.Everytime

thatthishasoccurredinthepast,thesesectorshaverecoveredtotheir

meaninashortperiodoftime.”Rodriguezbelievesthattechnical

analysishasthepotentialtouncoveropportunitieswherethereare

over-orunder-reactionstorelevantinformation.

Case:Empire&Associates

?Whichnewclientwouldmostlikelybeidentifiedasafriendlyfollower?

A.Blake.

Friendlyfollowersarepassiveinvestorswithlowtomoderaterisk

tolerance.Friendlyfollowerstendtofollowleadsfromtheirfriends,

colleagues,oradvisors.Theyoftenwanttobeinthelatest,most

popularinvestmentswithoutregardtosuitabilityforlong-termgoals.

Rodriguez’snotesindicateWilliamsonconsidershimselftobealowto

moderaterisktaker.Inaddition,headmitsfollowingtheadviceof

colleaguesandthisadviceresultedinpurchaseoflatest,popularstocks

withoutconsiderationofgoals.

Case:Empire&Associates

?Carter’sstatementregardingbehavioralclassificationsismost

likelyjustifiedbecauseindividualinvestorsgenerally:

A.exhibitcharacteristicsofmultipleinvestortypes.

?Solution:A

Alimitationofbehavioralmodelsisthatindividualinvestorsdo

frequentlyexhibitcharacteristicsofmultipleinvestortypes.Thisisa

limitationofbehavioralmodelsandjustifiesCarter’sconcern.Usersof

thesemodelsshouldnotlookforpeopletofitneatlyintoone“box”or

type.

Case:Empire&Associates

?GivenNeilson’sbehavioralinvestorcharacteristics,themosteffective

approachinadvisingherwouldincludeprovidingherwith:

C.informationabouthowEmpirewillhelphermeetherinvestment

goals.

Neilsonwouldbeclassifiedasaguardianorpassive-preserver

investmenttypeandtheseinvestorsaremorereceptiveto“bigpicture”

advice.Passivepreserversdisplaypredominantlyemotionalbiasesand

thefocusofadviceshouldbeonad