Application of Behavioural Finance to the Interaction - Accounting Assignment Help

Assignment Task

Learning outcomes (LO) mapping Marks
1.Evaluate the application of behavioural finance to the interaction and engagement with SMSF trustees. 13
2.Explain factors resulting in measurable, systemic biases in investment decisions including the difference between collective and individual decisionmaking processes. 30
3.Analyse the impact of behaviour biases on SMSF fund investment strategies. 41
4.Develop a methodology for mentoring and guiding SMSF trustees. 11
Total marks =SUM(ABOVE) 95
Assignment presentation and referencing (5 marks)
You are required to research beyond the subject notes in answering the questions in this assignment. Reference and cite all your sources when quoting or using material from external sources. Include a reference list at the end of your assignment.
You are required to:
•use appropriate presentation and format for your assignment
•demonstrate independent research and analysis
•demonstrate appropriate use of relevant references
•follow the Harvard referencing style as recommended in the ‘Referencing and Citations Guide’ available from the ‘Library Learning Hub’ in KapLearn
•include a reference list at the end of your assignment following the recommended referencing style
•adhere with the assignment word limit.
Criteria-based Marking Guide for presentation and referencing
The Criteria-based Marking Guide provided at the end of each question is designed to assist students to understand what is expected of them in each question and to let them know how their performance will be judged. It provides advice about the criteria used in the marking of the question and what discriminates between an excellent, satisfactory and unsatisfactory answer.
Excellent (Mark range: 4–5 marks) Satisfactory (Mark range: 2.5–3.5 marks) Unsatisfactory (Mark range: 0–2 marks)
•clear and appropriate assignment layout and structure
•adheres to assignment and question word limits
•clear evidence of independent research and analysis incorporated throughout assignment
•appropriate use of referencing
•accurate use of Harvard referencing style
•comprehensive reference list provided at end of assignment •adequate assignment layout and structure
•adheres to assignment and question word limits
•some evidence of independent research and analysis
•appropriate use of referencing
•use of Harvard referencing style
•reference list provided at end of assignment •poor assignment layout and/or structure
•assignment is significantly under or over the word limit
•no demonstrated independent research or analysis
•no use of references
•referencing does not use Harvard referencing style
•no or inadequate reference list provided at end of assignment
Section A (50 marks)
Instructions to students
There are three (3) short-answer questions in this section. Answer all questions.
Question SEQ Question \* ARABIC 1(20 marks | Word limit: 600 words)
LO2: Explain factors resulting in measurable, systemic biases in investment decisions including the difference between collective and individual decisionmaking processes.
LO3: Analyse the impact of behaviour biases on SMSF fund investment strategies.
(a)Explain how loss aversion can result in an SMSF trustee’s willingness to hold on to deteriorating investment positions. (10 marks)
(b)Briefly describe how each of the following can influence investor behaviour. (10 marks)
•emotional frames of self-control
•regret minimisation
•money illusion.
Criteria-based Marking Guide for Question 1a and 1b
Excellent(Mark range: 7.5–10 marks) Satisfactory(Mark range: 5–7 marks) Unsatisfactory(Mark range: 0–4.5 marks)
(a) •very clear explanation of how loss aversion can result in an SMSF trustee’s willingness to hold on to deteriorating investment positions
•concise, logical and justified answer with clear reasoning within the word limit •basic and reasonably clear explanation of how loss aversion can result in an SMSF trustee’s willingness to hold on to deteriorating investment positions.
•logical answer with clear reasoning within the word limit •minimal or no explanation of how loss aversion can result in an SMSF trustee’s willingness to hold on to deteriorating investment positions
•exceeds or is significantly less than word limit
Excellent(Mark range: 7.5–10 marks) Satisfactory(Mark range: 5–7 marks) Unsatisfactory(Mark range: 0–4.5 marks)
(b) •very clear explanation of how emotional frames of self-control, regret minimisation and money illusion influence investor behaviour
•concise, logical and justified answer with clear reasoning within the word limit •basic and reasonably clear explanation of how emotional frames of self-control, regret minimisation and money illusion influence investor behaviour
•logical answer with clear reasoning within the word limit •minimal or no explanation of emotional frames of how selfcontrol, regret minimisation and money illusion influence investor behaviour
•exceeds or is significantly less than word limit
Insert your answers to Section A: Question SEQ Answers_to_Section_A:_Question \* ARABIC 1(a)–(b) below this line
End of answers to Section A: Question SEQ End_of_answers_to_Section_A:_Question \* ARABIC 1(a)–(b)
Question SEQ Question \* ARABIC 2(20 marks | Word limit: 600 words)
LO2: Explain factors resulting in measurable, systemic biases in investment decisions including the difference between collective and individual decisionmaking processes.
LO3: Analyse the impact of behaviour biases on SMSF fund investment strategies.
(a)Discuss some of the impacts each of the following may have on security pricing.
•representativeness
•conservatism (anchoring and adjustment)
•frame dependence.
What are the implications for market efficiency? (10 marks)
(b)How could investor overconfidence influence the frequency of stock trading within an SMSF? (10 marks)
Criteria-based Marking Guide for Question 2a and 2b
Excellent(Mark range: 7.5–10 marks) Satisfactory(Mark range: 5–7 marks) Unsatisfactory(Mark range: 0–4.5 marks)
(a) •three (3) or more impacts are identified and the market implications are clearly explained
•concise, logical and justified answer with clear reasoning within the word limit •two (2) or more security impacts are identified and the market implications are explained
•logical answer with clear reasoning within the word limit •one (1) or no security impacts are identified and no market implications are explained
•exceeds or is significantly less than word limit
Excellent(Mark range: 7.5–10 marks) Satisfactory(Mark range: 5–7 marks) Unsatisfactory(Mark range: 0–4.5 marks)
(b) •two (2) implications of overconfidence are provided
•comprehensive explanation
•concise, logical and justified answer with clear reasoning within the word limit •one (1) implication of overconfidence is provided
•basic explanation
•logical answer with clear reasoning within the word limit •no implication of overconfidence is provided
•poor explanation
•exceeds or is significantly less than word limit
Insert your answers to Section A: Question SEQ Answers_to_Section_A:_Question \* ARABIC 2(a)–(b) below this line
End of answers to Section A: Question SEQ End_of_answers_to_Section_A:_Question \* ARABIC 2(a)–(b)
Question SEQ Question \* ARABIC 3(10 marks | Word limit: 300 words)
LO1: Evaluate the application of behavioural finance to the interaction and engagement with SMSF trustees.
LO2: Explain factors resulting in measurable, systemic biases in investment decisions including the difference between collective and individual decisionmaking processes.
LO3: Analyse the impact of behaviour biases on SMSF fund investment strategies.
We regularly read headlines such as, ‘Stock market forecasts are useless!’
Using behavioural finance theory, explain why stock market forecasts may continue to be used by investors when previous forecasts have been inaccurate. (10 marks)
Criteria-based Marking Guide for Question 3
Excellent (Range: 7.5–10 marks) Satisfactory (Range: 5–7 marks) Unsatisfactory (Range: 0–4.5 marks)
•demonstrates a clear understanding and explanation of anchoring and the psychological needs of investors to justify their investment behaviour
•concise, logical and justified answer with clear reasoning within the word limit •reference to anchoring and psychological needs of investors to justify their investment behaviour
•logical answer with clear reasoning within the word limit •no reference to anchoring or psychological needs of investors to justify their behaviour
•exceeds or is significantly less than word limit
Insert your answers to Section A: Question SEQ Answers_to_Section_A:_Question \* ARABIC 3 below this line
End of answers to Section A: Question SEQ End_of_answers_to_Section_A:_Question \* ARABIC 3
Section B (12 marks)
Instructions to students
There are six (6) short-answer questions in this section. Answer all questions.
Background information(12 marks | Word limit: 500 words)
Frank Brooks and Peter Timmons are portfolio managers for the largest managed fund of Liberty Financial Advisers. Liberty Financial Advisers provides a variety of managed funds for both individuals and institutions. Brooks has been a portfolio manager for eight years and has seen both bull and bear markets. Timmons is his assistant and has been at Liberty Financial Advisers for the two years following his graduation from a prestigious Masters in Finance program.
Over lunch, Brooks and Timmons discuss the latest quarterly earnings announcements for several firms in their portfolio. Despite optimistic projections for several firms, most announcements were quite disappointing. Timmons states that he is not convinced their prospects are as grim as the announcements suggest.
The next day, Brooks and Timmons provide a presentation to clients of Liberty Financial Advisers. Their guest presenter is Jim Davis, an economist at the local university who frequently provides economic commentary for national media outlets. During his presentation, Davis states that it is likely the US will enter a recession next year. He recommends that the clients shift their assets into investment grade bonds and non-cyclical stocks. He states he has been successful in predicting recessions over the past 15 years and is certain of his forecasts. He further maintains that the only time he has been wrong in predicting the business cycle is when Congress unexpectedly increased spending beyond what was expected. Davis asserts that if the spending increase had not happened, his prediction of a mild recession would have been correct, instead of the mild expansion that actually occurred.
During the afternoon session, Brooks discusses the various strategies at Liberty Financial Advisers. In the value/neglected firm strategy, Liberty Financial Advisers seeks out firms trading at reasonable valuations with no analyst following them. Brooks states that several academic studies have shown these firms to be good investments over a three-year time horizon from July in the current year to June 30th of Year 3, following their identification on June 30th of the current year. Brooks states that he has adopted this strategy for his portfolio.
Later that evening at dinner, Brooks, Timmons and Davis discuss the day’s events. Commenting on investment strategies, Davis says that he focuses on growth stocks with six-quarter earnings growth in the top quartile of their peer group. He adds that he monitors his portfolio on a quarterly basis and sets price targets for his stocks.
Criteria-based Marking Guide
Excellent(Mark range: 9–12 marks) Satisfactory(Mark range: 6–8.5 marks) Unsatisfactory(Mark range: 0–5.5 marks)
•five (5) or more correct answers given with logical and succinct explanation •three (3) or four (4) correct answers given with logical and succinct explanation •less than three (3) correct answers given with no logical and succinct explanation
Question 1
LO2: Explain factors resulting in measurable, systemic biases in investment decisions including the difference between collective and individual decisionmaking processes.
LO3: Analyse the impact of behaviour biases on SMSF fund investment strategies.
Identify and describe the behavioural characteristic that Timmons is applying in this scenario. (2 marks)
Insert your answers to Section B: Question 1 below this line
End of answers to Section B: Question 1
Question 2
LO2: Explain factors resulting in measurable, systemic biases in investment decisions including the difference between collective and individual decisionmaking processes.
LO3: Analyse the impact of behaviour biases on SMSF fund investment strategies.
Identify and describe the behavioural characteristic that Davis is applying in this scenario. (2 marks)
Insert your answers to Section B: Question 2 below this line
End of answers to Section B: Question 2
 

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