Question 1

If you believe in the reversal effect, you should

Accepted Answer

A)  sell bonds in this period if you held stocks in the last period. 
B)  sell stocks in this period if you held bonds in the last period. 
C)  sell stocks this period that performed well last period. 
D)  go long. 
E)  sell stocks this period that performed well last period and go long. 
A)  sell bonds in this period if you held stocks in the last period. 
B)  sell stocks in this period if you held bonds in the last period. 
C)  sell stocks this period that performed well last period. 
D)  go long. 
E)  sell stocks this period that performed well last period and go long.

Question 2

Proponents of the EMH typically advocate

Accepted Answer

A)  an active trading strategy. 
B)  investing in an index fund. 
C)  a passive investment strategy. 
D)  an active trading strategy and investing in an index fund. 
E)  investing in an index fund and a passive investment strategy. 
A)  an active trading strategy. 
B)  investing in an index fund. 
C)  a passive investment strategy. 
D)  an active trading strategy and investing in an index fund. 
E)  investing in an index fund and a passive investment strategy.

Question 3

Your professor finds a stock-trading rule that generates excess risk-adjusted returns. Instead of publishing the results, she keeps the trading rule to herself. This is most closely associated with

Accepted Answer

A)  regret avoidance. 
B)  selection bias. 
C)  framing. 
D)  insider trading. 
A)  regret avoidance. 
B)  selection bias. 
C)  framing. 
D)  insider trading.

Question 4

When Maurice Kendall examined the patterns of stock returns in 1953, he concluded that the stock market was __________. Now, these random price movements are believed to be _________.

Accepted Answer

A)  inefficient; the effect of a well-functioning market 
B)  efficient; the effect of an inefficient market 
C)  inefficient; the effect of an inefficient market 
D)  efficient; the effect of a well-functioning market 
E)  irrational; even more irrational than before 
A)  inefficient; the effect of a well-functioning market 
B)  efficient; the effect of an inefficient market 
C)  inefficient; the effect of an inefficient market 
D)  efficient; the effect of a well-functioning market 
E)  irrational; even more irrational than before

Question 5

The Food and Drug Administration (FDA) just announced yesterday that they would approve a new cancer-fighting drug from Queen. You observe that Queen had an abnormal return of 0% yesterday. This suggests that

Accepted Answer

A)  the market is not efficient. 
B)  Queen stock will probably rise in value tomorrow. 
C)  Queen stock will probably fall in value tomorrow. 
D)  the approval was already anticipated by the market. 
A)  the market is not efficient. 
B)  Queen stock will probably rise in value tomorrow. 
C)  Queen stock will probably fall in value tomorrow. 
D)  the approval was already anticipated by the market.

Question 6

Jaffe (1974) found that stock prices _________ after insiders intensively bought shares.

Accepted Answer

A)  decreased 
B)  did not change 
C)  increased 
D)  became extremely volatile 
E)  became much less volatile 
A)  decreased 
B)  did not change 
C)  increased 
D)  became extremely volatile 
E)  became much less volatile

Question 7

Basu (1977, 1983) found that firms with low P/E ratios

Accepted Answer

A)  earned higher average returns than firms with high P/E ratios. 
B)  earned the same average returns as firms with high P/E ratios. 
C)  earned lower average returns than firms with high P/E ratios. 
D)  had higher dividend yields than firms with high P/E ratios. 
A)  earned higher average returns than firms with high P/E ratios. 
B)  earned the same average returns as firms with high P/E ratios. 
C)  earned lower average returns than firms with high P/E ratios. 
D)  had higher dividend yields than firms with high P/E ratios.

Question 8

Which of the following are investment superstars who have consistently shown superior performance?I) Warren BuffetII) Phoebe BuffetIII) Peter LynchIV) Merrill LynchV) Jimmy Buffet

Accepted Answer

A)  I, III, and IV 
B)  II, III, and IV 
C)  I and III 
D)  III and IV 
E)  I, III, IV, and V 
A)  I, III, and IV 
B)  II, III, and IV 
C)  I and III 
D)  III and IV 
E)  I, III, IV, and V

If you believe in the reversal effect, you should

Proponents of the EMH typically advocate

Your professor finds a stock-trading rule that generates excess risk-adjusted returns. Instead of publishing the results, she keeps the trading rule to herself. This is most closely associated with

When Maurice Kendall examined the patterns of stock returns in 1953, he concluded that the stock market was __. Now, these random price movements are believed to be _.

The Food and Drug Administration (FDA) just announced yesterday that they would approve a new cancer-fighting drug from Queen. You observe that Queen had an abnormal return of 0% yesterday. This suggests that

Jaffe (1974) found that stock prices _________ after insiders intensively bought shares.

Basu (1977, 1983) found that firms with low P/E ratios

Which of the following are investment superstars who have consistently shown superior performance?I) Warren BuffetII) Phoebe BuffetIII) Peter LynchIV) Merrill LynchV) Jimmy Buffet

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Exam 11: The Efficient Market Hypothesis

If you believe in the reversal effect, you should

Proponents of the EMH typically advocate

Your professor finds a stock-trading rule that generates excess risk-adjusted returns. Instead of publishing the results, she keeps the trading rule to herself. This is most closely associated with

When Maurice Kendall examined the patterns of stock returns in 1953, he concluded that the stock market was __________. Now, these random price movements are believed to be _________.

The Food and Drug Administration (FDA) just announced yesterday that they would approve a new cancer-fighting drug from Queen. You observe that Queen had an abnormal return of 0% yesterday. This suggests that

Jaffe (1974) found that stock prices _________ after insiders intensively bought shares.

Basu (1977, 1983) found that firms with low P/E ratios

Which of the following are investment superstars who have consistently shown superior performance?I) Warren BuffetII) Phoebe BuffetIII) Peter LynchIV) Merrill LynchV) Jimmy Buffet

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

When Maurice Kendall examined the patterns of stock returns in 1953, he concluded that the stock market was __. Now, these random price movements are believed to be _.