Exam 11: The Efficient Market Hypothesis

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.

Cumulative abnormal returns (CAR)

If you believe in the _______ form of the EMH, you believe that stock prices only reflect all information that can be derived by examining market trading data such as the history of past stock prices, trading volume or short interest.

Which of the following are used by fundamental analysts to determine proper stock prices I. Trendlines II. Earnings III. Dividend prospects IV. Expectations of future interest rates V. Resistance levels

LJP Corporation just announced yesterday that it would undertake an international joint venture.You observe that LJP had an abnormal return of 3% yesterday.This suggests that

Work by Amihud and Mendelson (1986, 1991)

With regard to market efficiency, what is meant by the term "anomaly" Give three examples of market anomalies and explain why each is considered to be an anomaly.

Patell and Woflson (1984) report that most of the stock price response to corporate dividend or earnings announcements occurs within ____________ of the announcement.

Matthews Corporation has a beta of 1.2.The annualized market return yesterday was 13%, and the risk-free rate is currently 5%.You observe that Matthews had an annualized return yesterday of 17%.Assuming that markets are efficient, this suggests that

According to proponents of the efficient market hypothesis, the best strategy for a small investor with a portfolio worth $40,000 is probably to

Music Doctors just announced yesterday that its first quarter sales were 35% higher than last year's first quarter.You observe that Music Doctors had an abnormal return of -2% yesterday.This suggests that

Del Guerico and Reuter (2013) report that the average underperformance of actively managed mutual funds is driven largely by

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.

Your professor finds a stock-trading rule that generates excess risk-adjusted returns.Instead of publishing the results, she keeps the trading rule to herself.This is most closely associated with

_________ above which it is difficult for the market to rise.

Music Doctors has a beta of 2.25.The annualized market return yesterday was 12%, and the risk-free rate is currently 4%.You observe that Music Doctors had an annualized return yesterday of 15%.Assuming that markets are efficient, this suggests that

If you believe in the reversal effect, you should

Two basic assumptions of technical analysis are that security prices adjust

Nicholas Manufacturing just announced yesterday that its fourth quarter earnings will be 10% higher than last year's fourth quarter.Nicholas had an abnormal return of -1.2% yesterday.This suggests that

The Food and Drug Administration (FDA) just announced yesterday that they would approve a new cancer-fighting drug from King.You observe that King had an abnormal return of 0% yesterday.This suggests that