Bounded rationality and efficient market hypothesis

[johntavv]

From Schweser:
1. Client is frustrating to deal with because he is only willing to consider new stocks of domestic companies but will not consider international companies, even in other highly developed markets.
How is the concept best exhibited here bounded rationality?
2. Client insists that his client manager use ETF’s for her domestic large cap stock allocations but use individual securities for her small-cap growth stocks.
How is the concept best exhibited here efficient markets hypothesis?

 

[CFA 2015]

1. Home bias- behavioral bias - not considering all the resource - bounded rationality
2. Not seeing any behavioral biases here

 

[MrSmart]

johntavv wrote:
From Schweser:
1. Client is frustrating to deal with because he is only willing to consider new stocks of domestic companies but will not consider international companies, even in other highly developed markets.
How is the concept best exhibited here bounded rationality?
2. Client insists that his client manager use ETF’s for her domestic large cap stock allocations but use individual securities for her small-cap growth stocks.
How is the concept best exhibited here efficient markets hypothesis?

1 was already answered
2, There is no need to choose individual securities in a EMH framework, because there is no mispricing, so ETF in small cap is best.

 

[hashtag]

^Wrong, Egypt. In general, small caps are followed less closely than large caps, which makes earning alpha via security selection more likely (than in large caps).
#tryagain

 

[MrSmart]

hashtag wrote:
^Wrong, Egypt. In general, small caps are followed less closely than large caps, which makes earning alpha via security selection more likely (than in large caps).
#tryagain

This does not make sense in an EMH framework.
#notreally