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

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

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

________ 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.

Stockholders are residual claimants,meaning that they

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

Financial markets quickly eliminate unexploited profit opportunities through changes in

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

A phenomenon closely related to market overreaction is

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

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

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

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

If expectations are formed rationally,then individuals

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

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

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 model,if D1 is $.50,ke is 7%,and g is 5%,then the present value of the stock is

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

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

What rights does ownership interest give stockholders?