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

People have a strong incentive to form rational expectations because ________.

If during the past decade the average rate of monetary growth has been 5 percent and the average inflation rate has been 5 percent,everything else held constant,when the Bank of Canada announces that the new rate of monetary growth will be 10 percent,the adaptive expectation forecast of the inflation rate is ________.

An increase in uncertainty for the economy will ________.

What rights does ownership interest give stockholders?

If a market participant believes that a stock price is irrationally high,they may try to borrow stock from brokers to sell in the market and then make a profit by buying the stock back again after the stock falls in price.This practice is called ________.

A phenomenon closely related to market overreaction is ________.

Evidence against market efficiency includes ________.

The efficient markets hypothesis suggests that if an unexploited profit opportunity arises in an efficient market,________.

If a corporation announces that it expects quarterly earnings to increase by 25 percent and it actually sees an increase of 22 percent,what should happen to the price of the corporation's stock if the efficient markets hypothesis holds,everything else held constant?

Psychologists have found that people tend to be ________ in their own judgments.

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

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

For small investors,the best way to pursue a "buy and hold" strategy is to ________.

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

If expectations are formed adaptively,then people ________.

Tests used to rate the performance of rules developed in technical analysis conclude that technical analysis ________.

What is the current price of a telecommunication company's stock if earnings per share are projected to be $1.50 per share and the industry's average PE ratio is $30?

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

Sometimes one observes that the price of a company's stock falls after the announcement of favorable earnings.This phenomenon is ________.

________ 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.