Exam 7: The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

You read a story in the newspaper announcing the proposed merger of Dell Computer and Gateway.The merger is expected to greatly increase Gateway's profitability.If you decide to invest in Gateway stock,you can expect to earn

A change in perceived risk of a stock changes

In the one-period valuation model,the current stock price increases if

New information that might lead to a decrease in a stock's price might be

Mean reversion refers to the fact that

People have a strong incentive to form rational expectations because

The advantage of a "buy-and-hold strategy" is that

________ means people are more unhappy when they suffer losses than they are happy when they achieve gains.

In the generalized dividend model,a future sales price far in the future does not affect the current stock price because

Your best friend calls and gives you the latest stock market "hot tip" that he heard at the health club.Should you act on this information? Why or why not?

Studies of mutual fund performance indicate that mutual funds that outperformed the market in one time period usually

The global financial crisis lead to a decline in stock prices because

The view that expectations change relatively slowly over time in response to new information is known in economics as

The elimination of unexploited profit opportunities requires that ________ market participants be well informed.

If in an efficient market all prices are correct and reflect market fundamentals,which of the following is a false statement?

If expectations are formed rationally,then individuals

If a market participant believes that a stock price is irrationally high,they may try to borrow stock from brokers to sell in the market and then make a profit by buying the stock back again after the stock falls in price.This practice is called

The efficient markets hypothesis implies that prices in the stock market

The small-firm effect refers to the

The January effect refers to the fact that