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

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

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

The value of any investment is found by computing the

A stockholder's ownership of a company's stock gives her the right to

Your best friend calls and gives you the latest stock market "hot tip" that he heard at the health club.Should you act on this information? Why or why not?

If market participants notice that a variable behaves differently now than in the past,then,according to rational expectations theory,we can expect market participants to

Which of the following types of information most likely allows the exploitation of a profit opportunity?

When we describe stock prices as following a random walk,we mean that future changes in stock prices are

Using the Gordon growth model,a stock's current price will increase if

The small-firm effect refers to the

A stock's price will fall if there is

According to rational expectations

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

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

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

Suppose Barbara looks out in the morning and sees a clear sky so decides that a picnic for lunch is a good idea.Last night the weather forecast included a 100% chance of rain by midday but Barbara did not watch the local news program.Is Barbara's prediction of good weather at lunch time rational? Why or why not?

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

A phenomenon closely related to market overreaction is

The elimination of unexploited profit opportunities requires that ________ market participants be well informed.

The number and availability of discount brokers has grown rapidly since the mid-1970s.The efficient markets hypothesis predicts that people who use discount brokers