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

If a corporation announces that it expects quarterly earnings to increase by 25% and it actually sees an increase of 22%,what should happen to the price of the corporation's stock if the efficient markets hypothesis holds,everything else held constant?

According to rational expectations,

Loss aversion can explain why very little ________ actually takes place in the securities market.

If during the past decade the average rate of monetary growth has been 5% and the average inflation rate has been 5%,everything else held constant,when the Federal Reserve announces that the new rate of monetary growth will be 10%,the adaptive expectation forecast of the inflation rate is

An expectation may fail to be rational if

A stock's price will fall if there is

Using the Gordon growth formula,if D₁ is $1.00,k_e is 10% or 0.10,and g is 5% or 0.05,then the current stock price is

If expectations of the future inflation rate are formed solely on the basis of a weighted average of past inflation rates,then economics would say that expectation formation is

Increased uncertainty resulting from the global financial crisis ________ the required return on investment in equity.

Using the Gordon growth model,if D_{1 is $.50,}k_{e is 7%,and g is 5%,then the present value of the stock is}

A phenomenon closely related to market overreaction is

Financial markets quickly eliminate unexploited profit opportunities through changes in

The efficient markets hypothesis suggests that if an unexploited profit opportunity arises in an efficient market,

If expectations are formed adaptively,then people