Financial Management in Sports NYU
Fall 2024
Overconfidence - answer Assuming forecasts are more precise than they are
Over-Optimism - answer Overestimating the likelihood of a good outcome
Confirmation Bias - answer Putting more weight into information that agrees with a
preexisting opinion
Framing Effects (Framing Dependence) - answer How something is framed may impact
the answer given or choice selected
Loss Aversion - answer Retain losing investments for too long
House Money - answer More likely to risk money that has been won than money that
has been earned
Mental Accounting - answerIf one stock goes down by $20 and another stock goes up
by $20, you tend to think investment B was a smart decision by you and investment A
was just bad luck
Disposition Effect - answerTendency to sell winners and hold losers
Myopic Loss Aversion - answerTendency to focus on avoiding short-term losses, even
at the expense of long-term gains
Regret Aversion - answerTendency to avoid making a decision because you fear that, in
hindsight, the decision would have been less than optimal
Endowment Effect - answerTendency to consider something that you own to be worth
more than it would be if you did not own it
Money Illusion - answerYou are confused b/w real buying power and nominal buying
power, you don't account for the effects of inflation
Gambler's Fallacy - answerAssumes a departure from the average will be corrected in
the short-term
Bubble - answerMarket prices exceed the level that normal, rational analysis would
suggest
, Crash - answerSignificant, sudden drop in market-wide values, generally associated
with the end of a bubble
Money Manager Performance - answerIf markets are inefficient as a result of behavioral
factors, then investment managers should be able to generate excess returns
Small Cap Stocks - answerHave the largest return
Risk Premiums - answerThe return over and above the risk-free rate. The "extra" return
earned for taking a risk
Variance and Standard Deviation - answerMeasure the volatility of asset returns
Volatility - answerThe greater the volatility, the greater the uncertainty
Efficient Capital Markets - answerStock prices are in equilibrium or are "fairly" priced
and you should be able to earn "abnormal" returns
Weak Form Efficiency - answerIf market is ___ then investors can't earn abnormal
returns by trading on market information
Semistrong Form Efficiency - answerIf market is _____then investors cannot earn
abnormal returns by trading on public information
Strong Form Efficiency - answerIf market is ______, investors can't earn abnormal
returns regardless of the information they possess. Insider trading
Systematic Risk (Non-Diversifiable Risk, Market Risk) - answerRisk factors that affect a
large number of assets like GDP, inflation, interest rates, etc.
Unsystematic Risk (Unique Risk, Asset-Specific Risk) - answerRisk factors that affect a
limited number of assets like labor strikes, part shortages, etc.
Diversifiable Risk - answerThe risk that can be eliminated by combining assets into a
portfolio, often considered the same as unsystematic risk
Systematic Risk Principle - answerThere is a reward for bearing risk
- The expected return on a risky asset depends only on that asset's systematic risk
since unsystematic risk can be diversified away
Beta - answerMeasure of systematic risk. The higher it is, the higher the risk premium
should be
Beta < 1 - answerImplies the asset has less systematic risk than the overall market
Beta > 1 - answerImplies the asset has more systematic risk than the overall market
Fall 2024
Overconfidence - answer Assuming forecasts are more precise than they are
Over-Optimism - answer Overestimating the likelihood of a good outcome
Confirmation Bias - answer Putting more weight into information that agrees with a
preexisting opinion
Framing Effects (Framing Dependence) - answer How something is framed may impact
the answer given or choice selected
Loss Aversion - answer Retain losing investments for too long
House Money - answer More likely to risk money that has been won than money that
has been earned
Mental Accounting - answerIf one stock goes down by $20 and another stock goes up
by $20, you tend to think investment B was a smart decision by you and investment A
was just bad luck
Disposition Effect - answerTendency to sell winners and hold losers
Myopic Loss Aversion - answerTendency to focus on avoiding short-term losses, even
at the expense of long-term gains
Regret Aversion - answerTendency to avoid making a decision because you fear that, in
hindsight, the decision would have been less than optimal
Endowment Effect - answerTendency to consider something that you own to be worth
more than it would be if you did not own it
Money Illusion - answerYou are confused b/w real buying power and nominal buying
power, you don't account for the effects of inflation
Gambler's Fallacy - answerAssumes a departure from the average will be corrected in
the short-term
Bubble - answerMarket prices exceed the level that normal, rational analysis would
suggest
, Crash - answerSignificant, sudden drop in market-wide values, generally associated
with the end of a bubble
Money Manager Performance - answerIf markets are inefficient as a result of behavioral
factors, then investment managers should be able to generate excess returns
Small Cap Stocks - answerHave the largest return
Risk Premiums - answerThe return over and above the risk-free rate. The "extra" return
earned for taking a risk
Variance and Standard Deviation - answerMeasure the volatility of asset returns
Volatility - answerThe greater the volatility, the greater the uncertainty
Efficient Capital Markets - answerStock prices are in equilibrium or are "fairly" priced
and you should be able to earn "abnormal" returns
Weak Form Efficiency - answerIf market is ___ then investors can't earn abnormal
returns by trading on market information
Semistrong Form Efficiency - answerIf market is _____then investors cannot earn
abnormal returns by trading on public information
Strong Form Efficiency - answerIf market is ______, investors can't earn abnormal
returns regardless of the information they possess. Insider trading
Systematic Risk (Non-Diversifiable Risk, Market Risk) - answerRisk factors that affect a
large number of assets like GDP, inflation, interest rates, etc.
Unsystematic Risk (Unique Risk, Asset-Specific Risk) - answerRisk factors that affect a
limited number of assets like labor strikes, part shortages, etc.
Diversifiable Risk - answerThe risk that can be eliminated by combining assets into a
portfolio, often considered the same as unsystematic risk
Systematic Risk Principle - answerThere is a reward for bearing risk
- The expected return on a risky asset depends only on that asset's systematic risk
since unsystematic risk can be diversified away
Beta - answerMeasure of systematic risk. The higher it is, the higher the risk premium
should be
Beta < 1 - answerImplies the asset has less systematic risk than the overall market
Beta > 1 - answerImplies the asset has more systematic risk than the overall market
