Ethics and Behavioral Finance (Research Paper Sample)
Question 3 – Ethics and behavioural finance [Total 10 Marks]
a) Assume we are now in mid- or late April 2022. After conducting your own analysis, you have made a decision to buy shares of CSGP in May. However, your friend, Jaden who is a financial advisor for CSGP tells you that CSGP's earnings for the first quarter 2022 is higher than the analyst estimates. He suggests you to buy its shares immediately (i.e. in mid- or late April 2022) before this information is announced to the public (and price increases). Please
state and explain which CFA Institute Code and Standards Jaden has breached.
(4 marks)
b) [Behavioural finance] After getting this information from Jaden, you refuse to take a position in the stock today and decide to continue to wait until May to buy it. What is the best terminology to describe your behaviour? Please use the best behavioural terminologies covered in the lectures and also explain your answers. (3 marks)
c) [Behavioural finance] Please treat part (c) as an independent question. Assume you have lost money from your investment in CSGP in June 2022. You now decide to invest your fund in a different stock. You have been monitoring the price and return movement of stock XYZ (a random name) over the past few weeks. You find that XYZ has been falling by more than 3% and listed among the top declining stocks each trading day over the past one week. You decide to buy XYZ as you believe that there could be a very high chance for it to rebound and generate high return in subsequent periods. What is the best terminology to describe your behaviour? Please use the best behavioural terminologies covered in the lectures and also explain your answers.
ETHICS AND BEHAVIOURAL FINANCE
Student’s Name
Course
Date
Ethics and Behavioral Finance
Question Three
Part A
The Chartered Financial Analyst (CFA) is a global association of investment professionals. The organization awards the CFA charter to successful financial analysts with high integrity and competence. The organizations have developed firm standards and codes of ethics that each financial analyst is expected to adhere to in their business conduct. The guidelines influence financial analysts' responsibilities and relationships with their employees or clients, the public, or the organization itself. Jayden has breached his CFA code and standard about duties to employers. The standard requires the body members to remain loyal to their employers. The CFA Institute (2019) necessitates candidates and members of the body to work towards the profitability of their employer or client.
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