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

You have observed that the forecasts of an investment advisor consistently outperform the other reported forecasts. The efficient markets hypothesis says that future forecasts by this advisor

In the Gordon growth model, a decrease in the required rate of return on equity

If expectations are formed adaptively, then people

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

In rational expectations theory, the term "optimal forecast" is essentially synonymous with

Sometimes one observes that the price of a company's stock falls after the announcement of favorable earnings. This phenomenon 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

The value of any investment is found by computing the

In asset markets, an asset's price is

The efficient markets hypothesis predicts that stock prices follow a "random walk." The implication of this hypothesis for investing in stocks is

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

The efficient markets hypothesis indicates that investors

Excessive volatility refers to the fact that

In the generalized dividend model, if the expected sales price is in the distant future

In the Gordon Growth Model, the growth rate is assumed to be ________ the required return on equity.

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

Evidence in support of the efficient markets hypothesis includes

________ occurs when market participants observe returns on a security that are larger than what is justified by the characteristics of that security and take action to quickly eliminate the unexploited profit opportunity.

In the one-period valuation model, an increase in the required return on investments in equity

According to the efficient markets hypothesis, the current price of a financial security