Question 1

According to the semistrong form of the efficient markets hypothesis, ________.

Accepted Answer

A)   stock prices do not rapidly adjust to new information
B)   future changes in stock prices cannot be predicted from any information that is publicly available
C)   corporate insiders should have no better investment performance than other investors even if allowed to trade freely
D)   arbitrage between futures and cash markets should not produce extraordinary profitsE) B) and D)
F) C) and D)

Question 2

When the market risk premium rises, stock prices will ________.

Accepted Answer

A)   rise
B)   fall
C)   recover
D)   have excess volatilityE) All of the above
F) C) and D)

Question 3

Stock prices that are stable over time ________.

Accepted Answer

A)   indicate that prices are useful indicators of true economic value
B)   indicate that the market is not incorporating new information into current stock prices
C)   ensure that an economy allocates its resources efficiently
D)   indicates that returns follow a random-walk processE) All of the above
F) C) and D)

Question 4

An implication of the efficient market hypothesis is that ________.

Accepted Answer

A)   high-beta stocks are consistently overpriced
B)   low-beta stocks are consistently overpriced
C)   nonzero alphas will quickly disappear
D)   growth stocks are better buys than value stocksE) B) and D)
F) A) and B)

Question 5

The small-firm effect is strongest in which month?

Accepted Answer

A)   January
B)   June
C)   July
D)   DecemberE) A) and B)
F) A) and C)

Question 6

Which of the following is not a concept related to explaining abnormal excess stock returns?

Accepted Answer

A)   January effect
B)   neglected-firm effect
C)   P/E effect
D)   preferred stock effectE) All of the above
F) C) and D)

Question 7

If the U.S. capital markets are not informationally efficient, ________.

Accepted Answer

A)   the markets cannot be allocationally efficient
B)   systematic risk does not matter
C)   no type of analysis can be used to generate abnormal returns
D)   returns must follow a random walkE) A) and B)
F) None of the above

Question 8

Evidence supporting semistrong-form market efficiency suggests that investors should ________.

Accepted Answer

A)   rely on technical analysis to select securities
B)   rely on fundamental analysis to select securities
C)   use a passive trading strategy such as purchasing an index fund or an ETF
D)   select securities by throwing darts at the financial pages of the newspaperE) None of the above
F) B) and C)

Question 9

Banz found that, on average, the risk-adjusted returns of small firms ________.

Accepted Answer

A)   were higher than the risk-adjusted returns of large firms
B)   were the same as the risk-adjusted returns of large firms
C)   were lower than the risk-adjusted returns of large firms
D)   were negativeE) A) and D)
F) A) and C)

Question 10

The semistrong form of the EMH states that ________ must be reflected in the current stock price.

Accepted Answer

A)   all security price and volume data
B)   all publicly available information
C)   all information, including inside information
D)   all costless informationE) A) and C)
F) A) and B)

Question 11

Which of the following statements is (are)  correct?

Accepted Answer

A)   If a market is weak-form efficient, it is also semistrong- and strong-form efficient.
B)   If a market is semistrong-form efficient, it is also strong-form efficient.
C)   If a market is strong-form efficient, it is also semistrong- but not weak-form efficient.
D)   If a market is strong-form efficient, it is also semistrong- and weak-form efficient.E) A) and B)
F) B) and D)

Question 12

Evidence suggests that there may be ________ momentum and ________ reversal patterns in stock price behavior.

Accepted Answer

A)   short-run; short-run
B)   long-run; long-run
C)   long-run; short-run
D)   short-run; long-runE) A) and B)
F) B) and C)

Exam 8: The Efficient Market Hypothesis

Evidence supporting semistrong-form market efficiency suggests that investors should ________.

Correct Answer
verified

Which of the following is not a concept related to explaining abnormal excess stock returns?

Correct Answer
verified

If the U.S. capital markets are not informationally efficient, ________.

Correct Answer
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When the market risk premium rises, stock prices will ________.

Correct Answer
verified

An implication of the efficient market hypothesis is that ________.

Correct Answer
verified

Evidence suggests that there may be momentum and reversal patterns in stock price behavior.

Correct Answer
verified

Which of the following statements is (are) correct?

Correct Answer
verified

Stock prices that are stable over time ________.

Correct Answer
verified

According to the semistrong form of the efficient markets hypothesis, ________.

Correct Answer
verified

The semistrong form of the EMH states that ________ must be reflected in the current stock price.

Correct Answer
verified

Banz found that, on average, the risk-adjusted returns of small firms ________.

Correct Answer
verified

The small-firm effect is strongest in which month?

Correct Answer
verified

Exam 8: The Efficient Market Hypothesis

Evidence supporting semistrong-form market efficiency suggests that investors should ________.

Correct AnswerverifiedShow Answer

Which of the following is not a concept related to explaining abnormal excess stock returns?

Correct AnswerverifiedShow Answer

If the U.S. capital markets are not informationally efficient, ________.

Correct AnswerverifiedShow Answer

When the market risk premium rises, stock prices will ________.

Correct AnswerverifiedShow Answer

An implication of the efficient market hypothesis is that ________.

Correct AnswerverifiedShow Answer

Evidence suggests that there may be ________ momentum and ________ reversal patterns in stock price behavior.

Correct AnswerverifiedShow Answer

Which of the following statements is (are) correct?

Correct AnswerverifiedShow Answer

Stock prices that are stable over time ________.

Correct AnswerverifiedShow Answer

According to the semistrong form of the efficient markets hypothesis, ________.

Correct AnswerverifiedShow Answer

The semistrong form of the EMH states that ________ must be reflected in the current stock price.

Correct AnswerverifiedShow Answer

Banz found that, on average, the risk-adjusted returns of small firms ________.

Correct AnswerverifiedShow Answer

The small-firm effect is strongest in which month?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Evidence suggests that there may be momentum and reversal patterns in stock price behavior.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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