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

The small-firm effect refers to the ________.

If a forecast made using all available information is not perfectly accurate, then it is ________.

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

What is the current price of a telecommunication company's stock if the current dividend is $0.80, the expected constant growth rate in dividends is 5% and the required return is 10%?

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

Evidence in support of the efficient markets hypothesis includes ________.

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

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

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 ________.

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

A company's dividend in one year is $1.00 and this is expected to increase at a constant rate of 2%. If the required return on this stock increases from 10% to 12$ by how much will the stock price change?

The value of any investment is found by computing the ________.

An expectation may fail to be rational if ________.

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

Monetary economists and financial economists developed ________ theories on expectations formations.

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

Dividends are paid from ________.

What is a recommended strategy for a small investor and how it is associated with the efficient market hypothesis?

You read a story in the newspaper announcing the proposed merger of Dell Computer and Gateway. The merger is expected to greatly increase Gateway's profitability. If you decide to invest in Gateway stock, you can expect to earn ________.

Dishonest corporate accounting procedures would cause stock prices to ________.