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

Rules used to predict movements in stock prices based on past patterns are, according to the efficient markets hypothesis,

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

The major criticism of the view that expectations are formed adaptively is that

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

When Happy Feet Corporation announces that their fourth quarter earnings are up 10%, their stock price falls. This is consistent with the efficient markets hypothesis

If the optimal forecast of the return on a security exceeds the equilibrium return, then

The efficient markets hypothesis suggests that investors

Financial markets quickly eliminate unexploited profit opportunities through changes in

According to the efficient markets hypothesis, purchasing the reports of financial analysts

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

In the generalized dividend model, the current stock price is the sum of

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

Using the one-period valuation model, assuming a year-end dividend of $1.00, an expected sales price of $100, and a required rate of return of 5%, the current price of the stock would be

Psychologists have found that people tend to be ________ in their own judgments.

A change in perceived risk of a stock changes

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

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

Information plays an important role in asset pricing because it allows the buyer to more accurately judge

________ is the field of study that applies concepts from social sciences such as psychology and sociology to help understand the behavior of securities prices.

A monetary expansion ________ stock prices due to a decrease in the ________ and an increase in the ________, everything else held constant.