Question

Investors gravitate toward the latest hot stock even though it has never paid a dividend. Even though net income is projected to fall over the current and next several years, the price of the stock continues to rise. What behavioral concept may explain this price pattern?A. , OverconfidenceB. , Loss aversionC. , Mental accountingD. , Calendar bias

Answer 1

Answer:

The answer is A. Overconfidence

Explanation:

Investors in the described questions obviously have too much belief on themselves for the their abilities to assess the firm's capacities to create values for its shareholders given there are no certain evidences, for example, the constant and/or growing dividend streams, the better profit-generating capacities.

This is a good example of how Investors is overconfident in a stock's performances although it is unclear that the firm has been or will be performed at the investors' expected level.