Question 1

Banz found that, on average, the risk-adjusted returns of small firms ________.

Accepted Answer

A)  were higher than the risk-adjusted returns of large firms 
B)  were the same as the risk-adjusted returns of large firms 
C)  were lower than the risk-adjusted returns of large firms 
D)  were negative 
A)  were higher than the risk-adjusted returns of large firms 
B)  were the same as the risk-adjusted returns of large firms 
C)  were lower than the risk-adjusted returns of large firms 
D)  were negative

Question 2

The semistrong form of the EMH states that ________ must be reflected in the current stock price.

Accepted Answer

A)  all security price and volume data 
B)  all publicly available information 
C)  all information, including inside information 
D)  all costless information 
A)  all security price and volume data 
B)  all publicly available information 
C)  all information, including inside information 
D)  all costless information

Question 3

If the U.S. capital markets are not informationally efficient, ________.

Accepted Answer

A)  the markets cannot be allocationally efficient 
B)  systematic risk does not matter 
C)  no type of analysis can be used to generate abnormal returns 
D)  returns must follow a random walk 
A)  the markets cannot be allocationally efficient 
B)  systematic risk does not matter 
C)  no type of analysis can be used to generate abnormal returns 
D)  returns must follow a random walk

Question 4

According to the semistrong form of the efficient markets hypothesis, ________.

Accepted Answer

A)  stock prices do not rapidly adjust to new information 
B)  future changes in stock prices cannot be predicted from any information that is publicly available 
C)  corporate insiders should have no better investment performance than other investors even if allowed to trade freely 
D)  arbitrage between futures and cash markets should not produce extraordinary profits 
A)  stock prices do not rapidly adjust to new information 
B)  future changes in stock prices cannot be predicted from any information that is publicly available 
C)  corporate insiders should have no better investment performance than other investors even if allowed to trade freely 
D)  arbitrage between futures and cash markets should not produce extraordinary profits

Question 5

When the market risk premium rises, stock prices will ________.

Accepted Answer

A)  rise 
B)  fall 
C)  recover 
D)  have excess volatility 
A)  rise 
B)  fall 
C)  recover 
D)  have excess volatility

Question 6

Which of the following statements is (are) correct?

Accepted Answer

A)  If a market is weak-form efficient, it is also semistrong- and strong-form efficient. 
B)  If a market is semistrong-form efficient, it is also strong-form efficient. 
C)  If a market is strong-form efficient, it is also semistrong- but not weak-form efficient. 
D)  If a market is strong-form efficient, it is also semistrong- and weak-form efficient. 
A)  If a market is weak-form efficient, it is also semistrong- and strong-form efficient. 
B)  If a market is semistrong-form efficient, it is also strong-form efficient. 
C)  If a market is strong-form efficient, it is also semistrong- but not weak-form efficient. 
D)  If a market is strong-form efficient, it is also semistrong- and weak-form efficient.

Question 7

The small-firm effect is strongest in which month?

Accepted Answer

A)  January 
B)  June 
C)  July 
D)  December 
A)  January 
B)  June 
C)  July 
D)  December

Question 8

An implication of the efficient market hypothesis is that ________.

Accepted Answer

A)  high-beta stocks are consistently overpriced 
B)  low-beta stocks are consistently overpriced 
C)  nonzero alphas will quickly disappear 
D)  growth stocks are better buys than value stocks 
A)  high-beta stocks are consistently overpriced 
B)  low-beta stocks are consistently overpriced 
C)  nonzero alphas will quickly disappear 
D)  growth stocks are better buys than value stocks

Question 9

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 10

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 11

Which of the following is not a concept related to explaining abnormal excess stock returns?

Accepted Answer

A)  January effect 
B)  neglected-firm effect 
C)  P/E effect 
D)  preferred stock effect 
A)  January effect 
B)  neglected-firm effect 
C)  P/E effect 
D)  preferred stock effect

Question 12

Evidence supporting semistrong-form market efficiency suggests that investors should ________.

Accepted Answer

A)  rely on technical analysis to select securities 
B)  rely on fundamental analysis to select securities 
C)  use a passive trading strategy such as purchasing an index fund or an ETF 
D)  select securities by throwing darts at the financial pages of the newspaper 
A)  rely on technical analysis to select securities 
B)  rely on fundamental analysis to select securities 
C)  use a passive trading strategy such as purchasing an index fund or an ETF 
D)  select securities by throwing darts at the financial pages of the newspaper

Banz found that, on average, the risk-adjusted returns of small firms ________.

The semistrong form of the EMH states that ________ must be reflected in the current stock price.

If the U.S. capital markets are not informationally efficient, ________.

According to the semistrong form of the efficient markets hypothesis, ________.

When the market risk premium rises, stock prices will ________.

Which of the following statements is (are) correct?

The small-firm effect is strongest in which month?

An implication of the efficient market hypothesis is that ________.

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

Stock prices that are stable over time ________.

Which of the following is not a concept related to explaining abnormal excess stock returns?

Evidence supporting semistrong-form market efficiency suggests that investors should ________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

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

Evaluating Investment Performance

International Diversification

Hedge Funds

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Filters

Exam 8: The Efficient Market Hypothesis

Banz found that, on average, the risk-adjusted returns of small firms ________.

The semistrong form of the EMH states that ________ must be reflected in the current stock price.

If the U.S. capital markets are not informationally efficient, ________.

According to the semistrong form of the efficient markets hypothesis, ________.

When the market risk premium rises, stock prices will ________.

Which of the following statements is (are) correct?

The small-firm effect is strongest in which month?

An implication of the efficient market hypothesis is that ________.

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

Stock prices that are stable over time ________.

Which of the following is not a concept related to explaining abnormal excess stock returns?

Evidence supporting semistrong-form market efficiency suggests that investors should ________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

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

Evaluating Investment Performance

International Diversification

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.