Verbal Ability – Behavioral models in finance most often critique
XAT 2021 Exam Paper – Verbal Ability – Behavioral models in finance most often critique
Read the following statements and answer the question that follows.
1. Behavioral models in finance most often critique the efficient market hypothesis,
which states that if investors behave rationally then prices should reflect all available
information about the financial asset in consideration.
2. A number of behavioral models, including feedback models where investors bid up
the price, have been used to explain this phenomenon.
3. But asset price bubbles and crashes belie this conclusion.
4. Finance is one of the fields where behavioral models have been used extensively,
enough for behavioral finance.
5. This idea of “irrational exuberance” is now widely accepted and used in financial
analysis, especially while analyzing asset price bubbles.
Arrange the above five statements in a logical sequence.
A. 1, 3, 2, 5, 4
B. 1, 4, 2, 3, 5
C. 4, 1, 3, 2, 5
D. 4, 5, 1, 3, 2
E. 4, 3, 1, 5, 2