【正文】 fident about the validity of their conclusions than is justified by their success rate or by the principles of standard finance, especially with regard to relevant time horizons. In standard finance, investors know that five years of returns on Country XYZ securities relative to all other markets provide little information about future performance. A standard finance investor would not be fooled by this “l(fā)aw of small numbers.” In standard finance, investors evaluate performance in portfolio terms, in this case defined by bining the Country XYZ holding with all other securities held. Investments in Country XYZ, like all other potential investments, should be evaluated in terms of the anticipated contribution to the risk reward profile of the entire portfolio.c. Frost’s statement is an example of mental accounting. Mental accounting holds that investors segregate money into mental accounts (., safe versus speculative), maintain a set of separate mental accounts, and do not bine outes。P 500 index than it is to outperform the index following such a signal. A decrease in relative strength, as in part (c), is regarded as a bearish signal. In our sample, contrary to the bearish signal, the Fidelity Banking Fund is actually more likely to outperform the index increase than it is to under perform following such a signal.CFA PROBLEMS 1. i. Mental accounting is best illustrated by Statement 3. Sampson’s requirement that his ine needs be met via interest ine and stock dividends is an example of mental accounting. Mental accounting holds that investors segregate funds into mental accounts (., dividends and capital gains), maintain a set of separate mental accounts, and do not bine outes。P 500 index eighteen times and outperformed the Samp。P 500 crosses through its moving average from above fourteen times, as indicated in the table below. The index increases nine times in weeks following a crossthrough and decreases five times.Date of crossthroughDirection of Samp。P 500 values and the 26week moving average, beginning with the 26th week of the data set.]a. The graph on the next page summarizes the data for the 26week moving average. The graph also shows the values of the Samp。 Buy signal (day 21 price moving average)Days 18 – 22 = Days 19 – 23 = Days 20 – 24 = Days 21 – 25 = Days 22 – 26 = Days 23 – 27 = Days 24 – 28 = Days 25 – 29 = Days 26 – 30 = Days 27 – 31 = Days 28 – 32 = Days 29 – 33 = 172。 second, the actions of arbitrageurs might move security prices towards their intrinsic values. It might be important for investors to be aware of these biases because either of these scenarios might create the potential for excess profits even if behavioral biases do not affect equilibrium prices.5. Efficient market advocates believe that publicly available information (and, for advocates of strongform efficiency, even insider information) is, at any point in time, reflected in securities prices, and that price adjustments to new information occur very quickly. Consequently, prices are at fair levels so that active management is very unlikely to improve performance above that of a broadly diversified index portfolio. In contrast, advocates of behavioral finance identify a number of investor errors in information processing and decision making that could result in mispricing of securities. However, the behavioral finance literature generally does not provide guidance as to how these investor errors can be exploited to generate excess profits. Therefore, in the absence of any profitable alternatives, even if securities markets are not efficient, the optimal strategy might still be a passive indexing strategy.6. Trin =This trin ratio, which is below , would be taken as a bullish signal.7. Breadth:AdvancesDeclinesNet Advances1,2332,068835Breadth is negative. This is a bearish signal (although no one would actually use a oneday measure as in this example).8. This exercise is left to the student。 that is, the perceived mispricing may not be real because the investor has used a faulty model to value the security.4. Two reasons why behavioral biases might not affect equilibrium asset prices are discussed in Quiz Problems (1) and (2) above: first, behavioral biases might contribute to the success of technical trading rules as prices gradually adjust towards their intrinsic values, and。 Sell signal (day 12 price moving average)Days 9 – 13 = Days 10 – 14 = Days 11 – 15 = Days 12 – 16 = Days 13 – 17 = Days 14 – 18 = Days 15 – 19 = Days 16 – 20 = Days 17 – 21 = 172。P 500, we first converted the weekly returns to weekly index values, using a base of 100 for the week prior to the first week of the