Exam 8: Stock Price Behaviour and Market Efficiency

Two weeks ago Ace Electronics announced that it had developed a new chip design which was being considered by major companies for use in future smart phone development. At the close of trading the day before the announcement, Ace common stock closed at $20. On the day following the announcement, Ace closed at $21. Two days after the announcement the stock closed at $22.50. Four days after the announcement the stock traded at $23. Last week, Ace stock traded at $26, a level it has maintained since then. This is an example of a(n):

Which one of the following statements is correct concerning market bubbles and crashes?

The January effect has often been attributed to:

The common stock of Repeat Company has increased in value every spring for the past five years and then decreased back to its original value every fall. If the market is weak-form efficient, then:

From the end of 1989 to the spring of 2003, the Nikkei Index declined in value approximately __________ percent.

An individual who trades based on information he or she has read in the financial press, analysis gathered from financial statements, and analyst's projections is a(n):

If the DJIA falls by 10 percent, the NYSE will:

You have a routine of studying the cash flows of public firms based on their quarterly financial statements. From your studies, you have determined that the market undervalues increases in a firm's operating cash flows and thus, you have been able to earn excess profits by trading on this information. This indicates that the market is less than __________ efficient.

Which of the following are possible factors contributing to the Crash of 1987? I. irrational investors II. program trading III. takeover activity IV. negative economic forecasts

Efficient markets

Ruth has taken two approaches to trading stocks. First, she found what she thought was a repetitive pattern in ABC Co.'s historical prices. Secondly, she found that using the financial statements of LKO Co. to compute changes in the return on equity would help predict the future stock price for that firm. She traded using both strategies. Ruth earned excess profit on market is at least __________ efficient but less than __________ efficient.

If financial markets are highly efficient:

If the markets are efficient, then asset allocation is __________ and security selection is __________.

Martha is a researcher for DL Medicals (DLM). She tells her boyfriend, Dan, about a patent application for a new drug which is about ready to be approved. This drug reverses the aging process. Dan can be charged with insider trading if he:

Studies indicate that the Vanguard 500 Index fund tends to:

You discover that if you purchase a stock after it has declined for three days in a row you will make a profit. If this is true, the market is not __________ -form efficient.

Since the day-of-the-week effect was identified in the early 1980s, the effect has:

A person who decides to buy or sell securities based on publicly available information and analysis is called a(n) __________ trader.

The "efficiency" referred to in the efficient market hypothesis is __________ efficiency.

The following is the daily returns for both the overall market and for Dagwood Industries. What is the cumulative abnormal return on Dagwood stock for these 5 days? 3/15 0.3\% 0.4\% 3/16 -0.1 0.2 3/17 0.2 0.8 3/18 0.3 0.5 3/19 -0.6 -0.4