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

On rainy days,Jennifer's commute time to work averages 45 minutes. Before leaving,Jennifer hears on the radio that a street on her route is closed due to high water. She plans to add an additional 15 minutes to her commute because of the detour. This decision represents

The theory of rational expectations,when applied to financial markets,is known as

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

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

Stockholders are residual claimants,meaning that they

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

One of the assumptions of the Gordon Growth Model is that dividends will continue growing at ________ rate.

Economists have focused more attention on the formation of expectations in recent years. This increase in interest can probably best be explained by the recognition that

Financial markets quickly eliminate unexploited profit opportunities through changes in

In asset markets,an asset's price is

The January effect refers to the fact that

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

Investors tend to trade on their beliefs rather than on pure facts. This statement might explain why securities markets have ________ that the efficient market hypothesis does not predict.

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

Mean reversion refers to the fact that

The efficient markets hypothesis implies that future changes in exchange rates should for all practical purposes be

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

A corporation's dividend payment is set by

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

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