According to the Theory of Recency Bias, Investors Tend to Believe

question 56

Multiple Choice

According to the theory of recency bias, investors tend to believe the financial markets will:

• A)gravitate to their long-term average rates of return.
• B)react over the next year in direct opposition to the performance of the prior year.
• C)have a maximum of three years of positive annual returns before declining somewhat.
• D)continue to perform as they have over the past couple of years.
• E)tend to reverse direction at least every five years.

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Definitions:

Locomotion

The ability to move from one place to another, which can be observed in all animals and involves processes such as walking, swimming, or flying.

Fear Of Heights

An anxiety disorder also known as acrophobia, characterized by an extreme and irrational fear of high places.

Habituation

The process by which an organism reduces its response to a repeated stimulus over time, not due to fatigue or sensory adaptation.

Short-Term Memory

The ability to keep a limited amount of data in a state of readiness and easy access for a brief duration.