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Explain the behavioral biases at work

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Explain how a combination of the conservatism bias and the representativeness bias can explain the presence of a pattern of short- to medium-term momentum along with long-term reversal patterns in the stock market.

What do you think would happen to a closed-end fund's discount if the fund announced that it would liquidate in six months when it will distribute the NAV to its shareholders? How does that announcement affect the fundamental risk of an arbitrageur that tries to exploit the closed-end fund discount?

A trendy investment instrument is what is called an 'equity-indexed-annuity' or EIA. This investment guarantees you a minimum rate of return in the stock market while ensuring you against any losses. EIAs are typically described as offering "the upside without the downside." But in exchange for limiting your losses, EIAs also slap a ceiling over your gains. Explain the behavioral biases at work in this example for why this investment option may be so popular.

Reference no: EM133002272

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