Question 1

When ____ of stocks are trading above the 200-day moving average, the market is considered ____ and subject to a ____.

Accepted Answer

A)  20 percent, oversold, negative correction 
B)  80 percent, overbought, negative correction 
C)  80 percent, oversold, positive correction 
D)  20 percent, overbought, positive correction 
E)  0 percent, overbought, positive correction 
A)  20 percent, oversold, negative correction 
B)  80 percent, overbought, negative correction 
C)  80 percent, oversold, positive correction 
D)  20 percent, overbought, positive correction 
E)  0 percent, overbought, positive correction

Question 2

When considering markets in Europe, it is inappropriate to assume a level of efficiency similar to that for U.S. markets.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following would be inconsistent with an efficient market?

Accepted Answer

A)  Information arrives randomly and independently. 
B)  Stock prices adjust rapidly to new information. 
C)  Price changes are independent. 
D)  Price changes are random. 
E)  Price adjustments are biased. 
A)  Information arrives randomly and independently. 
B)  Stock prices adjust rapidly to new information. 
C)  Price changes are independent. 
D)  Price changes are random. 
E)  Price adjustments are biased.

Question 4

In tests of the semistrong-form efficient market hypothesis, an adjustment for market effects is carried out by

Accepted Answer

A)  calculating the historical return. 
B)  calculating the market rate of return. 
C)  calculating the abnormal rate of return. 
D)  calculating the cross-sectional return. 
E)  calculating the monthly return. 
A)  calculating the historical return. 
B)  calculating the market rate of return. 
C)  calculating the abnormal rate of return. 
D)  calculating the cross-sectional return. 
E)  calculating the monthly return.

Question 5

For technical trading rules to generate returns that are superior to a buy-and-hold strategy, net of transaction costs, the market would have to be

Accepted Answer

A)  rising. 
B)  falling. 
C)  inefficient. 
D)  overvalued. 
E)  undervalued. 
A)  rising. 
B)  falling. 
C)  inefficient. 
D)  overvalued. 
E)  undervalued.

Question 6

Results from studies on the effects of unexpected world events have consistently indicated that the price change is so rapid that it takes place between the close of one day and the opening of the next day.

Accepted Answer

A) True 
 B)False

Question 7

Daily closings for the Dow Jones Industrial Average are provided in the table below.   Calculate a five-day moving average for day 6.

Accepted Answer

A)  11,397 
B)  13,565 
C)  13,594 
D)  13,647 
E)  13,676 
A)  11,397 
B)  13,565 
C)  13,594 
D)  13,647 
E)  13,676

Question 8

A price range at which technicians feel that a significant increase in the price of the stock will be resisted is referred to as

Accepted Answer

A)  supply threshold. 
B)  support level. 
C)  short interest level. 
D)  advancement level. 
E)  resistance level. 
A)  supply threshold. 
B)  support level. 
C)  short interest level. 
D)  advancement level. 
E)  resistance level.

Question 9

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 5.2. What is the abnormal rate of return for Stock ABC when you consider its systematic risk measure (beta)?

Accepted Answer

A)  2.4 percent 
B)  1.5 percent 
C)  -1.5 percent 
D)  2.0 percent 
E)  -3.2 percent 
A)  2.4 percent 
B)  1.5 percent 
C)  -1.5 percent 
D)  2.0 percent 
E)  -3.2 percent

Question 10

A technical analyst would consider a put call ratio of ____ as a bearish indicator.

Accepted Answer

A)  30 percent 
B)  40 percent 
C)  50 percent 
D)  60 percent 
E)  70 percent 
A)  30 percent 
B)  40 percent 
C)  50 percent 
D)  60 percent 
E)  70 percent

Question 11

According to prospect theory,

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 12

When the 50-day MA line crosses the 200-day MA line from above, it is considered a buy signal.

Accepted Answer

A) True 
 B)False

Question 13

The following are classified as contrary trading rules EXCEPT

Accepted Answer

A)  odd lot short sales. 
B)  investment advisory opinions. 
C)  relative OTC volume. 
D)  CBOE put/call ratio. 
E)  confidence index. 
A)  odd lot short sales. 
B)  investment advisory opinions. 
C)  relative OTC volume. 
D)  CBOE put/call ratio. 
E)  confidence index.

Question 14

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 5.4. What is the abnormal rate of return for Stock B when you consider its systematic risk measure (beta)?

Accepted Answer

A)  0.1 percent 
B)  -1.4 percent 
C)  0.5 percent 
D)  1.5 percent 
E)  2.0 percent 
A)  0.1 percent 
B)  -1.4 percent 
C)  0.5 percent 
D)  1.5 percent 
E)  2.0 percent

Question 15

Which of the following is NOT considered an assumption of technical analysis?

Accepted Answer

A)  Market value is determined solely by supply and demand. 
B)  Supply and demand are governed by both rational and irrational factors. 
C)  Security prices tend to move in trends that persist for an appreciable length of time. 
D)  Stock prices follow a random walk. 
E)  Changes in trend are caused by the shifts in supply and demand relationships. 
A)  Market value is determined solely by supply and demand. 
B)  Supply and demand are governed by both rational and irrational factors. 
C)  Security prices tend to move in trends that persist for an appreciable length of time. 
D)  Stock prices follow a random walk. 
E)  Changes in trend are caused by the shifts in supply and demand relationships.

Question 16

A high put/call ratio indicates a pervasive bearish attitude by sophisticated investors, so it is a bearish indicator.

Accepted Answer

A) True 
 B)False

Question 17

According to Wood (2010), which three tributaries form the river of behavioral finance?

Accepted Answer

A)  Behavioral psychology, social psychology, and quantum physics. 
B)  Behavioral psychology, social psychology, and neurofinance. 
C)  Behavioral psychology, contrary psychology, and quantum physics. 
D)  Behavioral psychology, smart money psychology, and brain plasticity. 
E)  Behavioral psychology, contrary psychology, and neurofinance. 
A)  Behavioral psychology, social psychology, and quantum physics. 
B)  Behavioral psychology, social psychology, and neurofinance. 
C)  Behavioral psychology, contrary psychology, and quantum physics. 
D)  Behavioral psychology, smart money psychology, and brain plasticity. 
E)  Behavioral psychology, contrary psychology, and neurofinance.

Question 18

The Dow Theory contends that stock price movements are similar to the movement of tides, waves, and ripples.

Accepted Answer

A) True 
 B)False

Question 19

A chart used to show only significant price changes, regardless of their timing, is the

Accepted Answer

A)  candlestick chart. 
B)  multiple indicator chart. 
C)  bar chart. 
D)  point-and-figure chart. 
E)  point-and-click chart. 
A)  candlestick chart. 
B)  multiple indicator chart. 
C)  bar chart. 
D)  point-and-figure chart. 
E)  point-and-click chart.

Question 20

The January anomaly refers to the phenomenon where stock prices

Accepted Answer

A)  decline in December. 
B)  decline in January. 
C)  rise in January. 
D)  decline in December and rise in January. 
E)  rise in December and decline in January. 
A)  decline in December. 
B)  decline in January. 
C)  rise in January. 
D)  decline in December and rise in January. 
E)  rise in December and decline in January.

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

When ____ of stocks are trading above the 200-day moving average, the market is considered ____ and subject to a ____.

When considering markets in Europe, it is inappropriate to assume a level of efficiency similar to that for U.S. markets.

Which of the following would be inconsistent with an efficient market?

In tests of the semistrong-form efficient market hypothesis, an adjustment for market effects is carried out by

For technical trading rules to generate returns that are superior to a buy-and-hold strategy, net of transaction costs, the market would have to be

Results from studies on the effects of unexpected world events have consistently indicated that the price change is so rapid that it takes place between the close of one day and the opening of the next day.

Daily closings for the Dow Jones Industrial Average are provided in the table below. Calculate a five-day moving average for day 6.

A price range at which technicians feel that a significant increase in the price of the stock will be resisted is referred to as

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 5.2. What is the abnormal rate of return for Stock ABC when you consider its systematic risk measure (beta)?

A technical analyst would consider a put call ratio of ____ as a bearish indicator.

According to prospect theory,

When the 50-day MA line crosses the 200-day MA line from above, it is considered a buy signal.

The following are classified as contrary trading rules EXCEPT

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 5.4. What is the abnormal rate of return for Stock B when you consider its systematic risk measure (beta)?

Which of the following is NOT considered an assumption of technical analysis?

A high put/call ratio indicates a pervasive bearish attitude by sophisticated investors, so it is a bearish indicator.

According to Wood (2010), which three tributaries form the river of behavioral finance?

The Dow Theory contends that stock price movements are similar to the movement of tides, waves, and ripples.

A chart used to show only significant price changes, regardless of their timing, is the

The January anomaly refers to the phenomenon where stock prices

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

When of stocks are trading above the 200-day moving average, the market is considered and subject to a .

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 5.2. What is the abnormal rate of return for Stock ABC when you consider its systematic risk measure (beta)?

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 5.4. What is the abnormal rate of return for Stock B when you consider its systematic risk measure (beta)?