DeBondt and Thaler (1990) Argue That the P/E Effect Can

question 14

Multiple Choice

DeBondt and Thaler (1990) argue that the P/E effect can be explained by

• A) forecasting errors.
• B) earnings expectations that are too extreme.
• C) earnings expectations that are not extreme enough.
• D) regret avoidance.
• E) forecasting errors and earnings expectations that are too extreme.

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Definitions:

Producer Surplus

The extra benefit or profit that producers make when they sell a product for more than the minimum price they were willing to accept.

Phantom Tickets

Tickets for an event that are sold but are either nonexistent or vastly oversold, often associated with fraudulent or speculative selling practices.

Minimum Price

The lowest legal price at which a good or service can be sold, often set to ensure producers can cover their costs.

Total Producer Surplus

The difference between the total revenue that producers receive and the minimum amount they would be willing to accept for their goods or services.