If the Optimal Forecast of the Return on a Security

question 89

Multiple Choice

If the optimal forecast of the return on a security exceeds the equilibrium return,then

• A)the market is inefficient.
• B)no unexploited profit opportunities exist.
• C)the market is in equilibrium.
• D)the market is myopic.

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Definitions:

Confirmation Bias

The inclination to seek out, understand, prefer, and remember data in a manner that supports one's already held beliefs or theories.

Law of Small Numbers

The erroneous belief that small samples will accurately represent the larger population from which they are drawn.

Law of Small Numbers

A cognitive bias that leads people to draw broad conclusions from small samples of data.

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.