Exam 11: The Efficient Market Hypothesis

On November 22,2009 the stock price of WalMart was $39.50 and the retailer stock index was 600.30.On November 25,2009 the stock price of WalMart was $40.25 and the retailer stock index was 605.20.Consider the ratio of WalMart to the retailer index on November 22 and November 25.WalMart is _______ the retail industry and technical analysts who follow relative strength would advise _______ the stock.

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.

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.

Studies of stock price reactions to news are called

A common strategy for passive management is ____________.

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

When Maurice Kendall examined the patterns of stock returns in 1953 he concluded that the stock market was __________.Now,these random price movements are believed to be _________.

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

Basu (1977,1983)found that firms with high P/E ratios

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

Work by Amihud and Mendelson (1986,1991)

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

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

Sehun (1986)finds that the practice of monitoring insider trade disclosures,and trading on that information,would be ________.

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

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

The main difference between the three forms of market efficiency is that

Two basic assumptions of technical analysis are that security prices adjust

If stock prices follow a random walk