GROUP A - 2
prepared by Dong Yue (China), Assel Nuralina (Kazakhstan), Firuza Mammadova (Azerbaijan) , Daniel Shapiro(Mexico)
1-q) Describe the organization of JP Morgan Chase: which business units does it have? Which ones deal with asset management and investing?
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $2trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management, and private equity.
The company includes 3 business units:
1. JP Morgan Brand - The Investment Bank and Asset Wealth Management
2. JP Morgan Chase brand – Treasury &Secuirities Services
3. Chase Brand – Commercial Bank, Card Services, Retail Financial Services
These businesses use the J.P. Morgan brand: Investment Bank, Asset Management, Treasury Services, Worldwide Securities Services, Private Banking, Private Client Services, One Equity Partners
JP Morgan Brand deals with asset management and investing. The Asset & Wealth Management Segment providedinvestment and wealth management services for institutions and individuals. The group managed the clients` assets through three key business units: the Private bank, the Private Client Services (PCS) and Asset Management.
J.P. Morgan Asset Management:
- Clear focus on managing client assets and delivering strong risk-adjusted returns
- Nearly 1,300 investment professionals providing morethan 350 different strategies spanning the full spectrum of asset classes, including equity, fixed income, cash liquidity, currency, real estate, hedge funds and private equity
- Leadership positions in America, U.K., Continental Europe, Asia, and Japan
2q) Compare behavioral finance to the efficient market hypothesis. On what assumptions does the EMH rely and to what extent does behavioralfinance disagree with these assumptions?
Assumptions of Efficient Market Hypothesis (EMH):
(1) Investors are rational. So they can evaluate the value of assets rationally.
(2) Trading of investors are random trading. Even if some investors are irrational, their trading will cancel each other out. So the pricing of the asset will not get deviated.
(3) Arbitrage exists in the market. Even ifthe irrational trading of investors is relevant with each other, its affects to the asset pricing will be eliminated by the arbitrage in the market.
Behavioral finance believes that the EMH assumption is not generally the case in the real world:
(1) Not all investors are rational. The rational assumption relies on assumption that the decision of investors is based on rational expectation,risk aversion and utility maximization. But it’s not the fact. For example, investors are not always risk-averse, because they are often overconfident about their decisions or attribute an unrelated thing to the decision. So behavior finance suggests the assumption that investors are rational should be replaced by real-world behavior of investors.
(2) Trading of investors are not random. Theyoften tend to be in same direction, so they may not be able to cancel each other out. Furthermore, the phenomenon will be serious when investors have herd behavior. Behavior finance believes that it is caused by the cognitive errors of investors. The affection to the rational decision made by cognitive errors is systematical and cannot be cancelled out by statistical average.
(3) The arbitrage inthe market is limited. Behavior finance believes that there exist risk and implementation costs when achieving arbitrage in real world.
3-q) What are the two most powerful behavioral biases according to Complin and Tarca? Given three other behavioral biases and explain these biases.
Overconfidence and loss aversion are the two most powerful behavioral biases according to Complin and Tarca....