Discussion 5: The Human Element to Biases in the Market
Do non-economic factors aﬀect market prices? If so, are they likely to be economically meaningful? Researchers suggest that psychology-based trading strategies aﬀord ﬁnancial managers the opportunity to exploit and develop proﬁtable outcomes (Addoum & Kumar, 2013). In previous weeks, you explored how behaviors might provide further insight into key anomalies found in market eﬃciency as well as how they might impact stock market puzzles. As a ﬁnancial manager, it will be important for you to develop your skills in psychology-based trading strategies of which understanding the human element to biases will be ﬁrst and foremost.
For this discussion, you will examine whether human mistakes ultimately inﬂuence ﬁnancial markets. You also will examine the elimination of the human element to determine if biases no longer occur in ﬁnancial decision-making. Review the course material and speciﬁcally focus on how the human element may inﬂuence ﬁnancial markets.
Discussion 6: Market Ineﬃciency and Corporate Decisions
When investors increase their demand for dividend-paying stocks and those stocks become more popular, do managers increase the amount of dividends? Is it possible that ﬁrms that have not paid dividends in the past exhibit a greater propensity to pay dividends when the demand for dividends goes up? Similarly, if investors are overly optimistic about a ﬁrm, are managers more likely to issue more equity? These questions are just a few to consider as you begin to understand how corporate managers make better ﬁnancial decisions through comprehending market ineﬃciencies generated by investor biases. For this discussion, you will examine how corporate managers exploit market ineﬃciencies to make better ﬁrm-level decisions. Review the course material and discuss how corporate managers exploit market ineﬃciencies. How could they improve their decisions? Also, consider how you might exploit market ineﬃciencies to make better ﬁrm-level decisions.
Discussion 7: Looking Forward . . .
As you look forward to your future as a ﬁnancial manager in a corporate setting or working with a money management ﬁrm, you will continuously reﬂect on your beliefs and constantly seek new opportunities for growth and development. For this discussion, you will reﬂect on your personal beliefs as you look forward to your future work in ﬁnancial management. Please organize your discussion around the following questions:
Reﬂect and explain whether you believe biased investors will survive. If so, how will they survive? If not, why?
Reﬂect and explain whether you believe mispricing and correction pattern will disappear. If so, how? If not, why?
Reﬂect and explain whether you believe CEOs will make optimal corporate decisions. If so, how? If not, why?
Reﬂect and explain whether you believe analyst forecasts will become more accurate. If so, how? If not, why?
Reﬂect and explain whether you believe markets will become more eﬃcient. If so, how? If not, why?
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