Question 1

Basu found that firms with high P/E ratios __________.

Accepted Answer

A)  earned higher average returns than firms with low P/E ratios 
B)  earned the same average returns as firms with low P/E ratios 
C)  earned lower average returns than firms with low P/E ratios 
D)  had higher dividend yields than firms with low P/E ratios 
A)  earned higher average returns than firms with low P/E ratios 
B)  earned the same average returns as firms with low P/E ratios 
C)  earned lower average returns than firms with low P/E ratios 
D)  had higher dividend yields than firms with low P/E ratios

Question 2

In a recent study,Fama and French found that the return on the aggregate stock market was __________ when the dividend yield was higher.

Accepted Answer

A)  higher 
B)  lower 
C)  unaffected 
D)  more skewed 
A)  higher 
B)  lower 
C)  unaffected 
D)  more skewed

Question 3

Stock prices that are stable over time _______.

Accepted Answer

A)  indicate that prices are useful indicators of true economic value 
B)  indicate that the market is not incorporating new information into current stock prices 
C)  ensure that an economy allocates its resources efficiently 
D)  indicates that returns follow a random walk process 
A)  indicate that prices are useful indicators of true economic value 
B)  indicate that the market is not incorporating new information into current stock prices 
C)  ensure that an economy allocates its resources efficiently 
D)  indicates that returns follow a random walk process

Question 4

The lack of adequate trading volume in stock that may ultimately lead to its ability to produce excess returns is referred to as the ____________________.

Accepted Answer

A)  January effect 
B)  liquidity effect 
C)  neglected firm effect 
D)  P/E effect 
A)  January effect 
B)  liquidity effect 
C)  neglected firm effect 
D)  P/E effect

Question 5

Evidence suggests that there may be _______ momentum and ________ reversal patterns in stock price behavior.

Accepted Answer

A)  short-run, short-run 
B)  long-run, long-run 
C)  long-run, short-run 
D)  short-run, long run 
A)  short-run, short-run 
B)  long-run, long-run 
C)  long-run, short-run 
D)  short-run, long run

Question 6

According to Markowitz and other proponents of modern portfolio theory which of the following activities would not be expected to produce any benefits?

Accepted Answer

A)  Diversification 
B)  Investing in Treasury bills 
C)  Investing in stocks of utility companies 
D)  Engaging in active portfolio management to enhance returns 
A)  Diversification 
B)  Investing in Treasury bills 
C)  Investing in stocks of utility companies 
D)  Engaging in active portfolio management to enhance returns

Question 7

Most tests of semi-strong efficiency are _________.

Accepted Answer

A)  designed to test whether inside information can be used to generate abnormal returns 
B)  based on technical trading rules 
C)  unable to generate any evidence of market anomalies 
D)  joint tests of market efficiency and the risk adjustment measure 
A)  designed to test whether inside information can be used to generate abnormal returns 
B)  based on technical trading rules 
C)  unable to generate any evidence of market anomalies 
D)  joint tests of market efficiency and the risk adjustment measure

Question 8

Most people would readily agree that the stock market is not _________.

Accepted Answer

A)  weak form efficient 
B)  semi-strong form efficient 
C)  strong form efficient 
D)  efficient at all 
A)  weak form efficient 
B)  semi-strong form efficient 
C)  strong form efficient 
D)  efficient at all

Question 9

Fundamental indexing refers to ________.

Accepted Answer

A)  investing in index stocks in proportion to the stock's fundamental value 
B)  investing in index stocks in proportion to the stock's market value 
C)  investing an equal dollar amount in index stocks 
D)  investing in an equal amount shares in each of the index stocks 
A)  investing in index stocks in proportion to the stock's fundamental value 
B)  investing in index stocks in proportion to the stock's market value 
C)  investing an equal dollar amount in index stocks 
D)  investing in an equal amount shares in each of the index stocks

Question 10

Evidence by Blake,Elton and Gruber indicates that on average actively managed bond funds

Accepted Answer

A)  outperform passive fixed-income indexes __________. 
B)  under perform passive fixed-income indexes by a wide margin 
C)  perform as well as passive fixed-income indexes 
D)  under perform passive fixed-income indexes by an amount equal to fund expenses 
A)  outperform passive fixed-income indexes __________. 
B)  under perform passive fixed-income indexes by a wide margin 
C)  perform as well as passive fixed-income indexes 
D)  under perform passive fixed-income indexes by an amount equal to fund expenses

Question 11

Choosing stocks by searching for predictable patterns in stock prices is called ________.

Accepted Answer

A)  fundamental analysis 
B)  technical analysis 
C)  index management 
D)  random walk investing 
A)  fundamental analysis 
B)  technical analysis 
C)  index management 
D)  random walk investing

Question 12

Fama and French have suggested that many market anomalies can be explained as manifestations of ____________.

Accepted Answer

A)  regulatory effects 
B)  high trading costs 
C)  information asymmetry 
D)  varying risk premiums 
A)  regulatory effects 
B)  high trading costs 
C)  information asymmetry 
D)  varying risk premiums

Question 13

Small firms have tended to earn abnormal returns primarily in __________.

Accepted Answer

A)  the month of January 
B)  the month July 
C)  the trough of the business cycle 
D)  the peak of the business cycle 
A)  the month of January 
B)  the month July 
C)  the trough of the business cycle 
D)  the peak of the business cycle

Question 14

The primary objective of fundamental analysis is to identify __________.

Accepted Answer

A)  well run firms 
B)  poorly run firms 
C)  mis-priced stocks 
D)  high P/E stocks 
A)  well run firms 
B)  poorly run firms 
C)  mis-priced stocks 
D)  high P/E stocks

Question 15

A technical analyst is most likely to be affiliated with which investment philosophy?

Accepted Answer

A)  Active management 
B)  Buy and hold 
C)  Passive investment 
D)  Index funds 
A)  Active management 
B)  Buy and hold 
C)  Passive investment 
D)  Index funds

Question 16

Someone who invests in the Vanguard Index 500 mutual fund could most accurately be described as using what approach?

Accepted Answer

A)  Active management 
B)  Arbitrage 
C)  Fundamental analysis 
D)  Passive investment 
A)  Active management 
B)  Arbitrage 
C)  Fundamental analysis 
D)  Passive investment

Question 17

Which of the following is not a method employed by followers of technical analysis?

Accepted Answer

A)  Charting 
B)  Relative strength analysis 
C)  Earnings forecasting 
D)  Trading around support and resistance levels 
A)  Charting 
B)  Relative strength analysis 
C)  Earnings forecasting 
D)  Trading around support and resistance levels

Question 18

J.M.Keyes put all his money in one stock and the stock doubled in value in a matter of months.He did this three times in a row with three different stocks.J.M.got his picture on the front page of the Wall Street Journal.However the paper never mentioned the thousands of investors who made similar bets on other stocks and lost most of their money.This is an example of the ________ problem in deciding how efficient the markets are.

Accepted Answer

A)  magnitude 
B)  selection bias 
C)  lucky event 
D)  small firm 
A)  magnitude 
B)  selection bias 
C)  lucky event 
D)  small firm

Question 19

You are looking to invest in one of three stocks.Stock A has high expected earnings growth,Stock B has only modest expected earnings growth and Stock C is expected to generate poor earnings growth.Which stock is likely to generate the greatest alpha for you?

Accepted Answer

A)  Stock A 
B)  Stock B 
C)  Stock C 
D)  You cannot tell from the information given 
A)  Stock A 
B)  Stock B 
C)  Stock C 
D)  You cannot tell from the information given

Question 20

Most evidence indicates that U.S.stock markets are _______________________.

Accepted Answer

A)  reasonably weak form and semi-strong form efficient 
B)  strong form efficient 
C)  reasonably weak form but not semi- or strong form efficient 
D)  neither weak form, semi- or strong form efficient 
A)  reasonably weak form and semi-strong form efficient 
B)  strong form efficient 
C)  reasonably weak form but not semi- or strong form efficient 
D)  neither weak form, semi- or strong form efficient

Exam 8: The Efficient Market Hypothesis

Basu found that firms with high P/E ratios __________.

In a recent study,Fama and French found that the return on the aggregate stock market was __________ when the dividend yield was higher.

Stock prices that are stable over time _______.

The lack of adequate trading volume in stock that may ultimately lead to its ability to produce excess returns is referred to as the ____________________.

Evidence suggests that there may be _______ momentum and ________ reversal patterns in stock price behavior.

According to Markowitz and other proponents of modern portfolio theory which of the following activities would not be expected to produce any benefits?

Most tests of semi-strong efficiency are _________.

Most people would readily agree that the stock market is not _________.

Fundamental indexing refers to ________.

Evidence by Blake,Elton and Gruber indicates that on average actively managed bond funds

Choosing stocks by searching for predictable patterns in stock prices is called ________.

Fama and French have suggested that many market anomalies can be explained as manifestations of ____________.

Small firms have tended to earn abnormal returns primarily in __________.

The primary objective of fundamental analysis is to identify __________.

A technical analyst is most likely to be affiliated with which investment philosophy?

Someone who invests in the Vanguard Index 500 mutual fund could most accurately be described as using what approach?

Which of the following is not a method employed by followers of technical analysis?

You are looking to invest in one of three stocks.Stock A has high expected earnings growth,Stock B has only modest expected earnings growth and Stock C is expected to generate poor earnings growth.Which stock is likely to generate the greatest alpha for you?

Most evidence indicates that U.S.stock markets are _______________________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

Evidence suggests that there may be _ momentum and __ reversal patterns in stock price behavior.