Question 1

In an efficient market the correlation coefficient between stock returns for two non-overlapping time periods should be

Accepted Answer

A)  positive and large. 
B)  positive and small. 
C)  zero. 
D)  negative and small. 
E)  negative and large. 
A)  positive and large. 
B)  positive and small. 
C)  zero. 
D)  negative and small. 
E)  negative and large.

Question 2

Empirical research by DeBondt and Thaler (1985),Jagadeesh (1990)and Lehman (1990)

Accepted Answer

A)  found that poorly stocks that performed poorly in one period experienced sizable reversals in the subsequent period 
B)  found that stocks that performed poorly in one period experienced poor performance in the subsequent period 
C)  found that stocks that performed poorly in one period experienced neither better nor worse performance than other stocks in the subsequent period 
D)  did not try to test the reversal effect 
E)  reinforces the EMH 
A)  found that poorly stocks that performed poorly in one period experienced sizable reversals in the subsequent period 
B)  found that stocks that performed poorly in one period experienced poor performance in the subsequent period 
C)  found that stocks that performed poorly in one period experienced neither better nor worse performance than other stocks in the subsequent period 
D)  did not try to test the reversal effect 
E)  reinforces the EMH

Question 3

Banz (1981)found that,on average,the risk-adjusted returns of small firms

Accepted Answer

A)  were higher than the risk-adjusted returns of large firms 
B)  were the same as the risk-adjusted returns of large firms 
C)  were lower than the risk-adjusted returns of large firms 
D)  were unrelated to the risk-adjusted returns of large firms 
E)  were negative 
A)  were higher than the risk-adjusted returns of large firms 
B)  were the same as the risk-adjusted returns of large firms 
C)  were lower than the risk-adjusted returns of large firms 
D)  were unrelated to the risk-adjusted returns of large firms 
E)  were negative

Question 4

If you believe in the reversal effect,you should

Accepted Answer

A)  buy bonds in this period if you held stocks in the last period 
B)  buy stocks in this period if you held bonds in the last period 
C)  buy stocks this period that performed poorly last period 
D)  go short 
E)  c and d 
A)  buy bonds in this period if you held stocks in the last period 
B)  buy stocks in this period if you held bonds in the last period 
C)  buy stocks this period that performed poorly last period 
D)  go short 
E)  c and d

Question 5

A hybrid strategy is one where the investor

Accepted Answer

A)  uses both fundamental and technical analysis to select stocks. 
B)  selects the stocks of companies that specialize in alternative fuels. 
C)  selects some actively-managed mutual funds on their own and uses an investment advisor to select other actively-managed funds. 
D)  maintains a passive core and augments the position with an actively managed portfolio. 
E)  None of these are correct. 
A)  uses both fundamental and technical analysis to select stocks. 
B)  selects the stocks of companies that specialize in alternative fuels. 
C)  selects some actively-managed mutual funds on their own and uses an investment advisor to select other actively-managed funds. 
D)  maintains a passive core and augments the position with an actively managed portfolio. 
E)  None of these are correct.

Question 6

The weak form of the efficient market hypothesis asserts that

Accepted Answer

A)  stock prices do not rapidly adjust to new information contained in past prices or past data 
B)  future changes in stock prices cannot be predicted from past prices 
C)  technicians cannot expect to outperform the market 
D)  a and b 
E)  b and c 
A)  stock prices do not rapidly adjust to new information contained in past prices or past data 
B)  future changes in stock prices cannot be predicted from past prices 
C)  technicians cannot expect to outperform the market 
D)  a and b 
E)  b and c

Question 7

The likelihood of an investment newsletter's successfully predicting the direction of the market for three consecutive years by chance should be

Accepted Answer

A)  between 50% and 70%. 
B)  between 25% and 50%. 
C)  between 10% and 25%. 
D)  less than 10%. 
E)  greater than 70%. 
A)  between 50% and 70%. 
B)  between 25% and 50%. 
C)  between 10% and 25%. 
D)  less than 10%. 
E)  greater than 70%.

Question 8

If you believe in the ________ form of the EMH,you believe that stock prices reflect all relevant information including historical stock prices and current public information about the firm,but not information that is available only to insiders.

Accepted Answer

A)  semistrong 
B)  strong 
C)  weak 
D)  a,b,and c 
E)  none of these 
A)  semistrong 
B)  strong 
C)  weak 
D)  a,b,and c 
E)  none of these

Question 9

If you believe in the _________ form of the EMH,you believe that stock prices reflect all available information,including information that is available only to insiders.

Accepted Answer

A)  semistrong 
B)  strong 
C)  weak 
D)  all of these 
E)  none of these 
A)  semistrong 
B)  strong 
C)  weak 
D)  all of these 
E)  none of these

Question 10

The weak form of the efficient market hypothesis contradicts

Accepted Answer

A)  technical analysis,but supports fundamental analysis as valid 
B)  fundamental analysis,but supports technical analysis as valid 
C)  both fundamental analysis and technical analysis 
D)  technical analysis,but is silent on the possibility of successful fundamental analysis. 
E)  none of these. 
A)  technical analysis,but supports fundamental analysis as valid 
B)  fundamental analysis,but supports technical analysis as valid 
C)  both fundamental analysis and technical analysis 
D)  technical analysis,but is silent on the possibility of successful fundamental analysis. 
E)  none of these.

Question 11

The weather report says that a devastating and unexpected freeze is expected to hit Florida tonight,during the peak of the citrus harvest.In an efficient market one would expect the price of Florida Orange's stock to

Accepted Answer

A)  drop immediately. 
B)  remain unchanged. 
C)  increase immediately. 
D)  gradually decline for the next several weeks. 
E)  gradually increase for the next several weeks. 
A)  drop immediately. 
B)  remain unchanged. 
C)  increase immediately. 
D)  gradually decline for the next several weeks. 
E)  gradually increase for the next several weeks.

Question 12

Fama and French (1988)found that the return on the aggregate stock market _________

Accepted Answer

A)  is higher when the dividend yield is high 
B)  is lower when the dividend yield is high 
C)  is unrelated to the dividend yield 
D)  is higher when bank failures are high 
E)  is unrelated to the economy 
A)  is higher when the dividend yield is high 
B)  is lower when the dividend yield is high 
C)  is unrelated to the dividend yield 
D)  is higher when bank failures are high 
E)  is unrelated to the economy

Question 13

Which of the following are investment superstars who have consistently shown superior performance?
I.Warren Buffet
II.Phoebe Buffet
III.Peter Lynch
IV.Merrill Lynch
V.Jimmy Buffet

Accepted Answer

A)  I,III,and IV 
B)  II,III,and IV 
C)  I and III 
D)  III and IV 
E)  I,III,IV,and V 
A)  I,III,and IV 
B)  II,III,and IV 
C)  I and III 
D)  III and IV 
E)  I,III,IV,and V

Question 14

In an efficient market,__________.

Accepted Answer

A)  security prices react quickly to new information 
B)  security prices are seldom far above or below their justified levels 
C)  security analysts will not enable investors to realize superior returns consistently 
D)  one cannot make money 
E)  a,b,and c 
A)  security prices react quickly to new information 
B)  security prices are seldom far above or below their justified levels 
C)  security analysts will not enable investors to realize superior returns consistently 
D)  one cannot make money 
E)  a,b,and c

Question 15

Discuss the small firm effect,the neglected firm effect,and the January effect,the tax effect and how the four effects may be related.

Accepted Answer

Studies have shown that small firms earn

Question 16

Arbel (1985)found that

Accepted Answer

A)  the January effect was highest for neglected firms. 
B)  the book-to-market value ratio effect was highest in January 
C)  the liquidity effect was highest for small firms. 
D)  the neglected firm effect was independent of the small firm effect. 
E)  small firms had higher book-to-market value ratios. 
A)  the January effect was highest for neglected firms. 
B)  the book-to-market value ratio effect was highest in January 
C)  the liquidity effect was highest for small firms. 
D)  the neglected firm effect was independent of the small firm effect. 
E)  small firms had higher book-to-market value ratios.

Question 17

QQAG just announced yesterday that its fourth quarter earnings will be 35% higher than last year's fourth quarter.You observe that QQAG had an abnormal return of -1.7% yesterday.This suggests that

Accepted Answer

A)  the market is not efficient. 
B)  QQAG stock will probably rise in value tomorrow. 
C)  investors expected the earnings increase to be larger than what was actually announced. 
D)  investors expected the earnings increase to be smaller than what was actually announced. 
E)  earnings are expected to decrease next quarter. 
A)  the market is not efficient. 
B)  QQAG stock will probably rise in value tomorrow. 
C)  investors expected the earnings increase to be larger than what was actually announced. 
D)  investors expected the earnings increase to be smaller than what was actually announced. 
E)  earnings are expected to decrease next quarter.

Question 18

What is an event study? It is a test of what form of market efficiency? Discuss the process of conducting an event study,including the best variable(s)to observe as tests of market efficiency.

Accepted Answer

A event study is an empirical test which

Question 19

If you believe in the reversal effect,you should

Accepted Answer

A)  sell bonds in this period if you held stocks in the last period. 
B)  sell stocks in this period if you held bonds in the last period. 
C)  sell stocks this period that performed well last period. 
D)  go long. 
E)  sell stocks this period that performed well last period and go long 
A)  sell bonds in this period if you held stocks in the last period. 
B)  sell stocks in this period if you held bonds in the last period. 
C)  sell stocks this period that performed well last period. 
D)  go long. 
E)  sell stocks this period that performed well last period and go long

Question 20

Discuss the various forms of market efficiency.Include in your discussion the information sets involved in each form and the relationships across information sets and across forms of market efficiency.Also discuss the implications for the various forms of market efficiency for the various types of securities' analysts.

Accepted Answer

The weak form of the efficient markets h

Exam 9: Behavioral Finance and Technical Analysis

In an efficient market the correlation coefficient between stock returns for two non-overlapping time periods should be

Empirical research by DeBondt and Thaler (1985),Jagadeesh (1990)and Lehman (1990)

Banz (1981)found that,on average,the risk-adjusted returns of small firms

If you believe in the reversal effect,you should

A hybrid strategy is one where the investor

The weak form of the efficient market hypothesis asserts that

The likelihood of an investment newsletter's successfully predicting the direction of the market for three consecutive years by chance should be

If you believe in the ________ form of the EMH,you believe that stock prices reflect all relevant information including historical stock prices and current public information about the firm,but not information that is available only to insiders.

If you believe in the _________ form of the EMH,you believe that stock prices reflect all available information,including information that is available only to insiders.

The weak form of the efficient market hypothesis contradicts

The weather report says that a devastating and unexpected freeze is expected to hit Florida tonight,during the peak of the citrus harvest.In an efficient market one would expect the price of Florida Orange's stock to

Fama and French (1988)found that the return on the aggregate stock market _________

Which of the following are investment superstars who have consistently shown superior performance? I.Warren Buffet II.Phoebe Buffet III.Peter Lynch IV.Merrill Lynch V.Jimmy Buffet

In an efficient market,__________.

Discuss the small firm effect,the neglected firm effect,and the January effect,the tax effect and how the four effects may be related.

Arbel (1985)found that

QQAG just announced yesterday that its fourth quarter earnings will be 35% higher than last year's fourth quarter.You observe that QQAG had an abnormal return of -1.7% yesterday.This suggests that

What is an event study? It is a test of what form of market efficiency? Discuss the process of conducting an event study,including the best variable(s)to observe as tests of market efficiency.

If you believe in the reversal effect,you should

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

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