Exam 11: The Efficient Market Hypothesis

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

A finding that _________ would provide evidence against the semistrong form of the efficient-market theory.

When Maurice Kendall first examined stock price patterns in 1953, he found that

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

Work by Amihud and Mendelson (1986, 1991)

Fama and French (1992) found that the stocks of firms within the highest decile of book-to-market ratios had an average annual return of _______, while the stocks of firms within the lowest decile of book-to-market ratios had an average annual return of ________.

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.

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

A market decline of 23% on a day when there is no significant macroeconomic event ______ consistent with the EMH because ________.

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 _________.

Chartists practice

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

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

Proponents of the EMH typically advocate

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

Jaffe (1974) found that stock prices _________ after insiders intensively bought shares.

Two basic assumptions of technical analysis are that security prices adjust

If stock prices follow a random walk,

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

Studies of negative earnings surprises have shown that there is