When Selecting a Benchmark,it Is Important to Match the Security

question 22

Multiple Choice

When selecting a benchmark,it is important to match the security or portfolio that will be evaluated to securities:

• A)that have an opposing style.
• B)that have identical factor betas for all factors in the pricing model being utilized.
• C)that closely mimic the overall market.
• D)with the same PE ratios.
• E)of similar style that are available for purchase.

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Definitions:

Illusory Correlation

A cognitive anitr that describes when people falsely believe that two variables, such as events or actions, are related despite a lack of evidence.

Confirmation Bias

The tendency to search for, interpret, or remember information in a way that confirms one's preconceptions.

Co-worker

A person with whom one works, typically someone within the same workplace or organization.

Gambler's Fallacy

The erroneous belief that if an event occurs more frequently than normal during some period, it will happen less frequently in the future, or vice versa.