Question 1

Which of the following behaviors is consistent with escalation bias?

Accepted Answer

A)  buying more of a stock as it increases in value 
B)  buying more of a stock as it decreases in value 
C)  selling a stock as it decreases in value 
D)  selling a stock as it increases in value 
E)  buying or selling a stock as it increases in value 
A)  buying more of a stock as it increases in value 
B)  buying more of a stock as it decreases in value 
C)  selling a stock as it decreases in value 
D)  selling a stock as it increases in value 
E)  buying or selling a stock as it increases in value

Question 2

The opportunity to take advantage of the downward pressure on stock prices that result from end-of-the-year tax selling is known as the

Accepted Answer

A)  End-of-the-Year Effect. 
B)  December Anomaly. 
C)  End-of-the-Year Anomaly. 
D)  January Anomaly. 
E)  New Year Anomaly. 
A)  End-of-the-Year Effect. 
B)  December Anomaly. 
C)  End-of-the-Year Anomaly. 
D)  January Anomaly. 
E)  New Year Anomaly.

Question 3

Behavioral finance differs from the standard model of finance because behavioral finance

Accepted Answer

A)  precludes the impact of investor psychology. 
B)  includes the impact of investor psychology. 
C)  accepts the Efficient Markets Hypothesis. 
D)  rejects the idea of market anomalies. 
E)  rejects the idea of technical analysis. 
A)  precludes the impact of investor psychology. 
B)  includes the impact of investor psychology. 
C)  accepts the Efficient Markets Hypothesis. 
D)  rejects the idea of market anomalies. 
E)  rejects the idea of technical analysis.

Question 4

Escalation bias refers to the situation in which

Accepted Answer

A)  investors have a propensity to sell winners too soon and hang on to losers too long. 
B)  investors ignore bad news and overemphasize good news. 
C)  investors tend to follow the herd. 
D)  investors put more money into a failure rather than into a success. 
E)  investors are all noise traders. 
A)  investors have a propensity to sell winners too soon and hang on to losers too long. 
B)  investors ignore bad news and overemphasize good news. 
C)  investors tend to follow the herd. 
D)  investors put more money into a failure rather than into a success. 
E)  investors are all noise traders.

Question 5

Which of the following has NOT been involved in a direct test of the semi-strong form of the efficient market hypothesis?

Accepted Answer

A)  stock splits 
B)  new Issues 
C)  exchange listing 
D)  accounting changes 
E)  NYSE specialists' returns 
A)  stock splits 
B)  new Issues 
C)  exchange listing 
D)  accounting changes 
E)  NYSE specialists' returns

Question 6

An efficient market requires a large number of profit-maximizing investors.

Accepted Answer

A) True 
 B)False

Question 7

A resistance level is the price range at which the technician would expect an increase in the demand of stock and a price reversal.

Accepted Answer

A) True 
 B)False

Question 8

A portfolio manager without superior analytical skills should

Accepted Answer

A)  determine and quantify the risk preferences of a client. 
B)  minimize transaction costs. 
C)  maintain the specified risk level. 
D)  ensure that the portfolio is completely diversified. 
E)  All of these are correct. 
A)  determine and quantify the risk preferences of a client. 
B)  minimize transaction costs. 
C)  maintain the specified risk level. 
D)  ensure that the portfolio is completely diversified. 
E)  All of these are correct.

Question 9

A type of charting that normally disregards both time and volume is the

Accepted Answer

A)  bar chart. 
B)  point and figure chart. 
C)  pie chart. 
D)  histogram. 
E)  linear regression graph. 
A)  bar chart. 
B)  point and figure chart. 
C)  pie chart. 
D)  histogram. 
E)  linear regression graph.

Question 10

If the efficient market hypothesis is true, price changes are independent and biased.

Accepted Answer

A) True 
 B)False

Question 11

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
   RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5.5. What is the abnormal rate of return for Stock Z when you consider its systematic risk measure (beta)?

Accepted Answer

A)  0.1 percent 
B)  1.0 percent 
C)  0.5 percent 
D)  -1.0 percent 
E)  -2.0 percent 
A)  0.1 percent 
B)  1.0 percent 
C)  0.5 percent 
D)  -1.0 percent 
E)  -2.0 percent

Question 12

Results of studies concerning corporate insider trading indicate that corporate insiders generally enjoy above-average returns.

Accepted Answer

A) True 
 B)False

Question 13

A technical analyst would consider the following a strong buy signal:

Accepted Answer

A)  a graph of declining prices ends in a trough followed by an upward trend that breaks through the declining trend channel. 
B)  a graph of increasing prices ends in a peak followed by a downward trend that breaks through the rising trend channel. 
C)  a graph begins to trade in a flat trend after it breaks out of its rising trend channel. 
D)  a graph begins to trade in a declining trend after it breaks out of its flat trend channel. 
E)  a graph begins to trade in a flat trend with high volume. 
A)  a graph of declining prices ends in a trough followed by an upward trend that breaks through the declining trend channel. 
B)  a graph of increasing prices ends in a peak followed by a downward trend that breaks through the rising trend channel. 
C)  a graph begins to trade in a flat trend after it breaks out of its rising trend channel. 
D)  a graph begins to trade in a declining trend after it breaks out of its flat trend channel. 
E)  a graph begins to trade in a flat trend with high volume.

Question 14

Some studies have attempted to determine whether it is possible to predict future returns for a stock based on publicly available quarterly earnings reports. The results of these studies indicate

Accepted Answer

A)  stock prices adjust to reflect quarterly earnings reports. 
B)  stock prices do not adjust to reflect quarterly earnings reports. 
C)  support for the semistrong-EMH. 
D)  stock prices adjust if earnings reports are released in January. 
E)  stock prices do not adjust if earnings reports are released in January. 
A)  stock prices adjust to reflect quarterly earnings reports. 
B)  stock prices do not adjust to reflect quarterly earnings reports. 
C)  support for the semistrong-EMH. 
D)  stock prices adjust if earnings reports are released in January. 
E)  stock prices do not adjust if earnings reports are released in January.

Question 15

The relative strength ratio for a stock can be computed by dividing the value of the S&P 500 stock index by the price of a stock.

Accepted Answer

A) True 
 B)False

Question 16

A narrowing of the T-bill-Eurodollar is a ____ signal, because ____.

Accepted Answer

A)  bearish, it signals falling investor confidence 
B)  bullish, it signals rising investor confidence 
C)  bearish, it signals a flight to quality 
D)  bullish, it signals a flight to quality 
E)  neutral, it signals no change in investor confidence 
A)  bearish, it signals falling investor confidence 
B)  bullish, it signals rising investor confidence 
C)  bearish, it signals a flight to quality 
D)  bullish, it signals a flight to quality 
E)  neutral, it signals no change in investor confidence

Question 17

When the 50-day moving average crosses the 200-day moving average from below on good volume,

Accepted Answer

A)  this would be a bearish indicator because it signals a change to a negative trend. 
B)  this would be a bullish indicator because it signals a change to a negative trend. 
C)  this would be a bullish indicator because it signals a change to a positive trend. 
D)  this would be a bearish indicator because it signals a change to a positive trend. 
E)  this would be a neutral indicator because it signals a change to a trend. 
A)  this would be a bearish indicator because it signals a change to a negative trend. 
B)  this would be a bullish indicator because it signals a change to a negative trend. 
C)  this would be a bullish indicator because it signals a change to a positive trend. 
D)  this would be a bearish indicator because it signals a change to a positive trend. 
E)  this would be a neutral indicator because it signals a change to a trend.

Question 18

A technical analyst might consider the following a bearish signal.

Accepted Answer

A)  The percentage of speculators in stock index futures exceeds 70 percent. 
B)  The percentage of speculators in stock index futures exceeds 30 percent. 
C)  The percentage of speculators in stock index futures falls to 30 percent. 
D)  The percentage of speculators in stock index futures remains flat. 
E)  The percentage of speculators in stock index futures exceeds 20 percent. 
A)  The percentage of speculators in stock index futures exceeds 70 percent. 
B)  The percentage of speculators in stock index futures exceeds 30 percent. 
C)  The percentage of speculators in stock index futures falls to 30 percent. 
D)  The percentage of speculators in stock index futures remains flat. 
E)  The percentage of speculators in stock index futures exceeds 20 percent.

Question 19

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
   RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5.3. What is the abnormal rate of return for Hemlick during period t using only the aggregate market return (ignore differential systematic risk)?

Accepted Answer

A)  0.11 
B)  1.10 
C)  -1.80 
D)  -1.80. 
E)  -4.60 
A)  0.11 
B)  1.10 
C)  -1.80 
D)  -1.80. 
E)  -4.60

Question 20

Advances and declines are associated with market

Accepted Answer

A)  efficiency. 
B)  position. 
C)  diffusion. 
D)  depth. 
E)  breadth. 
A)  efficiency. 
B)  position. 
C)  diffusion. 
D)  depth. 
E)  breadth.

Exam 5: Efficient Capital Markets, Behavioral Finance, and Technical Analysis

Which of the following behaviors is consistent with escalation bias?

The opportunity to take advantage of the downward pressure on stock prices that result from end-of-the-year tax selling is known as the

Behavioral finance differs from the standard model of finance because behavioral finance

Escalation bias refers to the situation in which

Which of the following has NOT been involved in a direct test of the semi-strong form of the efficient market hypothesis?

An efficient market requires a large number of profit-maximizing investors.

A resistance level is the price range at which the technician would expect an increase in the demand of stock and a price reversal.

A portfolio manager without superior analytical skills should

A type of charting that normally disregards both time and volume is the

If the efficient market hypothesis is true, price changes are independent and biased.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Rit = return for stock i during period t Rmt = return for the aggregate market during period t -Refer to Exhibit 5.5. What is the abnormal rate of return for Stock Z when you consider its systematic risk measure (beta)?

Results of studies concerning corporate insider trading indicate that corporate insiders generally enjoy above-average returns.

A technical analyst would consider the following a strong buy signal:

Some studies have attempted to determine whether it is possible to predict future returns for a stock based on publicly available quarterly earnings reports. The results of these studies indicate

The relative strength ratio for a stock can be computed by dividing the value of the S&P 500 stock index by the price of a stock.

A narrowing of the T-bill-Eurodollar is a ____ signal, because ____.

When the 50-day moving average crosses the 200-day moving average from below on good volume,

A technical analyst might consider the following a bearish signal.

Advances and declines are associated with market

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) R_it = return for stock i during period t R_mt = return for the aggregate market during period t -Refer to Exhibit 5.5. What is the abnormal rate of return for Stock Z when you consider its systematic risk measure (beta)?

A narrowing of the T-bill-Eurodollar is a signal, because .