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

Increased uncertainty resulting from the subprime crisis ________ the required return on investment in equity.

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

The subprime financial crisis lead to a decline in stock prices because

In the generalized dividend model,a future sales price far in the future does not affect the current stock price because

The theory of rational expectations,when applied to financial markets,is known as

The major criticism of the view that expectations are formed adaptively is that

________ 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.

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

To say that stock prices follow a "random walk" is to argue that stock prices

Loss aversion can explain why very little ________ actually takes place in the securities market.

One of the assumptions of the Gordon Growth Model is that dividends will continue growing at ________ rate.

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

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

A phenomenon closely related to market overreaction is

Your best friend calls and gives you the latest stock market "hot tip" that he heard at the health club.Should you act on this information? Why or why not?

The efficient markets hypothesis suggests that investors

A monetary expansion ________ stock prices due to a decrease in the ________ and an increase in the ________,everything else held constant.

Economists have focused more attention on the formation of expectations in recent years.This increase in interest can probably best be explained by the recognition that

In the generalized dividend model,if the expected sales price is in the distant future

When Happy Feet Corporation announces that their fourth quarter earnings are up 10%,their stock price falls.This is consistent with the efficient markets hypothesis