In a Top-Down Analysis of Portfolio Construction

question 1

Multiple Choice

In a top-down analysis of portfolio construction

• A) decisions about which executives will manage the portfolio are made first,then capital allocation decisions are made.
• B) decisions about asset allocation are made first,then specific securities are chosen.
• C) decisions about specific securities are made first,then asset allocation decisions are made.
• D) all securities transactions must be approved by upper-level management.
• E) an investor's first decision would be about how much to hold in her favorite stock.

---

Definitions:

Anchoring

The tendency people have to unconsciously base, or “anchor,” the valuation of an item they are currently thinking about on recently considered but logically irrelevant information.

Decision Making

The process of selecting the best course of action from several alternatives to achieve a desired goal.

Irrelevant Information

Data or facts that do not influence decision-making processes in a given context, lacking value for the question or decision at hand.

Prospect Theory

A psychological theory that describes how people choose between probabilistic alternatives that involve risk.