AHMAD WAQAS DAR

208063
1) Yes, investors can take this as an opportunity to construct an arbitrage. The target companys
stock price rise while the company making the investment has its stock price fallen because it
pays premiums and got loans.
2) Managerial overconfidence and optimism both lead to overinvestment in a capital budgeting
context. These managers rely mostly on their own firms or geographic investments with a view
that this is the best and secure option avaialble which is not the case. As a result managers
exhibiting overconfidence and optimism chracteristics overinvest by time which may result in
severe losses.
3) Yes overconfidence of investors leads to excessive trading. It is due to the fact that these
investors have been lucky to predict some prices in the past or any reason which makes them
invest more. These investors think they have ability to predict future outcomes and to control
them. It is an experimental study which integrates both the layout of the topic and the
specification of the subject. Members are students enrolled who have already studied the
subject in financial planning but have not yet invested in real capital markets. The outcome of
the study indicates that high overconfidence stakeholders have a greater sales frequency than
low overconfidence investors. The other study revealed that, despite high overconfidence
investors, there are no trade gaps between pre- or post-bad news, while among low
overconfidence shareholders, the presence of poor reviews contributes to a drop in post-bad
news trading. Expected returns by high optimism investors are also slightly smaller than those
of low overconfidence investors.

4) In the lens of behavioural finance one can assume that dividend payout is totally irrelevant
and not to be compared with the company. The price of stock is determined using the
companys performance i.e. market value and other factors. This is termed as dividend
irrelevance theory. They are irrlelevant when divided policies do not effect the cashflow future
values.

5) The main argument of momentum life cycle is that a turnover is an important aspect in
defining the mutual existence of short- and long-term reversal. It can be observed that low
turnover winners and high turnover losers go through stronger persistence.
6) Yes financial analysts show symptoms of herding behavior. It has been observed that market
fluctuations and news also attract financial analysts and they sometimes exhibit herding
behavior by being overconfident and optimistic. We saw this in the housing bubble where
analysts failed to recognize and the bubble and got involved in a herding behavior characteristic
that led to a crisis.