Question $1$

What is the difference between financial assets like stocks and non$-$financial assets like paintings that make the former less susceptible to bubbles?

A$.$ Financial assets have intrinsic value, while non$-$financial assets like paintings do not have intrinsic value.

B$.$ Financial assets are intangible because they simply represent contracts; paintings are concrete and tangible$.$

C$.$ Financial asset markets are heavily regulated, while the market for paintings is not regulated.

Question $2$

During financial crises, stock prices are likely to drop. Does that mean that financial crises are manifestations of bubbles?

subject to a bubble means that the previously high price was excessive at that time.

B$.$ Yes, large stock price drops are manifestations of a bubble by definition.

Question $3$

A stock price bubble is defined as:

A$.$ A time when the stock price of a company is far above the level that rational, well$-$informed investors would value the company.

B$.$ A time when the price of a stock drops precipitously.

C$.$ A time when the P$/$E ratio for a stock is higher than it has been over the last two years.

Question $4$

When do bubbles arise?

A$.$ Bubbles arise and persist whenever many investors value a stock in an irrational manner.

thereby correcting the mispricing.

Question $5$

Market$-$wide bubbles are more likely to exist than bubbles in a given stock or in given sectors$.$

A$.$ True. People are more likely to have opinions on the broader market than on individual stocks; hence they might overvalue the entire market.

overvalued, there is nothing to compare it to$.$

options on these indices in liquid markets, any mispricing is less likely to persist.

Question $6$

Bubbles are more likely to occur in emerging markets,

A$.$ True, because information flows are not open$\_$and$\_$ there are structural constraints.

B$.$ False, because there is less money invested in emerging markets