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

Evidence in support of the efficient markets hypothesis includes

A change in perceived risk of a stock changes

Rational expectations forecast errors will on average be ________ and therefore ________ be predicted ahead of time.

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

Using the Gordon growth formula,if D1 is $2.00,ke is 12% or 0.12,and g is 10% or 0.10,then the current stock price is

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

Periodic payments of net earnings to shareholders are known as

If a forecast is made using all available information,then economists say that the expectation formation is

Using the one-period valuation model,assuming a year-end dividend of $0.11,an expected sales price of $110,and a required rate of return of 10%,the current price of the stock would be

The efficient markets hypothesis suggests that investors

Another way to state the efficient markets condition is: in an efficient market,

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

If expectations are formed adaptively,then people

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