$\frac{9}{20}$

$9$

Multiple Choice $5$ points

Which of the following is EALSE?

Asset allocation is the most important step in the irwestment process and involves the selection of asset classes such as US stocks; non. US stocks corporate bonds; US Treasuries; municipal bonds; real estate; commodities; and cash.

Security selection is the process of deciding which securities to hold within each of the various asset classes.

After several accounting scandals in late $1990\text{'}$s and early $2000,$ the Sarbanes$-$Oxley Act helped restore investor confidence in markets by tightening the rules of corporate governance which reduced the likelihood of corporate executives falsifying financial results.

Investors that believe markets are efficient should seek skilled investment managers based on their past performance track record.

An example of moral hazard in the housing market that led to the $2008$ financial crisis is when issuers of sub$-$prime mortgages had little incentive to perform adequate due diligence since the loans were sold to banks who then securitized the loans which were then sold to investors.