Question 1

Tests of the semistrong EMH include:

Accepted Answer

A)  regression analysis. 
B)  correlation tests that compare the security returns to the overall market return. 
C)  tests of the speed of adjustment of stock prices to company announcements. 
D)  queuing line theory tests. 
A)  regression analysis. 
B)  correlation tests that compare the security returns to the overall market return. 
C)  tests of the speed of adjustment of stock prices to company announcements. 
D)  queuing line theory tests. C

Question 2

Which of the following is a market anomaly?

Accepted Answer

A)  A relationship between money supply growth and stock prices. 
B)  A relationship between P/E ratios and subsequent stock returns. 
C)  Independence of stock price changes. 
D)  Adjustment of stock prices due to accounting changes. 
A)  A relationship between money supply growth and stock prices. 
B)  A relationship between P/E ratios and subsequent stock returns. 
C)  Independence of stock price changes. 
D)  Adjustment of stock prices due to accounting changes. B

Question 3

We can expect that the U.S. stock markets will be efficient for all of the following reasons EXCEPT:

Accepted Answer

A)  A large number of rational, profit-maximizing investors exist who actively participate in the U.S. market by analyzing, valuing, and trading stocks. 
B)  The U.S. economy is the largest in the world, with the most sophisticated investors. 
C)  Information is costless and widely available to market participants at approximately the same time. 
D)  Investors react quickly and fully to the new information, causing stock prices to adjust accordingly. 
A)  A large number of rational, profit-maximizing investors exist who actively participate in the U.S. market by analyzing, valuing, and trading stocks. 
B)  The U.S. economy is the largest in the world, with the most sophisticated investors. 
C)  Information is costless and widely available to market participants at approximately the same time. 
D)  Investors react quickly and fully to the new information, causing stock prices to adjust accordingly. B

Question 4

All of the following are considered market anomalies EXCEPT:

Accepted Answer

A)  size effect 
B)  January effect 
C)  earnings announcement anomaly 
D)  accounting changes effect 
A)  size effect 
B)  January effect 
C)  earnings announcement anomaly 
D)  accounting changes effect

Question 5

All of the following conditions must occur for a market to be considered efficient except:

Accepted Answer

A)  Information is costless and widely available to market participants at approximately the same time. 
B)  Information is generated in a specific fashion such that announcements are basically dependent on each other. 
C)  There are a large number of rational, profit-maximizing investors who actively participate in the market. 
D)  Investors react quickly and fully to the new information, causing stock prices to adjust accordingly. 
A)  Information is costless and widely available to market participants at approximately the same time. 
B)  Information is generated in a specific fashion such that announcements are basically dependent on each other. 
C)  There are a large number of rational, profit-maximizing investors who actively participate in the market. 
D)  Investors react quickly and fully to the new information, causing stock prices to adjust accordingly.

Question 6

What is a market anomaly? Give examples of several market anomalies.

Accepted Answer

An anomaly is an exception to a rule. Ma

Question 7

Which of the following announcements has NOT been involved in a direct test of the semi-strong form of the EMH?

Accepted Answer

A)  Dividend announcements 
B)  Accounting changes 
C)  Stock splits 
D)  Corporate insiders' actions 
A)  Dividend announcements 
B)  Accounting changes 
C)  Stock splits 
D)  Corporate insiders' actions

Question 8

Which of the following markets is generally considered to be the most efficient:

Accepted Answer

A)  China. 
B)  India. 
C)  Russia. 
D)  U.S. 
A)  China. 
B)  India. 
C)  Russia. 
D)  U.S.

Question 9

Select the FALSE statement concerning efficient markets.

Accepted Answer

A)  The current price of a stock reflects all known information. 
B)  Investors will use all relevant data in making their decisions. 
C)  A perfect adjustment in price follows any new information. 
D)  Following any adjustment, the new price does not have to be the new equilibrium price. 
A)  The current price of a stock reflects all known information. 
B)  Investors will use all relevant data in making their decisions. 
C)  A perfect adjustment in price follows any new information. 
D)  Following any adjustment, the new price does not have to be the new equilibrium price.

Question 10

According to the random walk hypothesis, price(s)

Accepted Answer

A)  over time are independent of one another. 
B)  changes over time are independent. 
C)  levels over time are independent. 
D)  changes today are dependent on yesterday's price changes. 
A)  over time are independent of one another. 
B)  changes over time are independent. 
C)  levels over time are independent. 
D)  changes today are dependent on yesterday's price changes.

Question 11

Which of the following is true regarding the size anomaly?

Accepted Answer

A)  As much as 50% of small cap outperformance is associated with the January effect. 
B)  Small cap stocks underperform large cap stocks in recent years. 
C)  Small cap stock outperformance is a NASDAQ phenomenon, not NYSE. 
D)  Small cap stock outperformance is unaffected by micro-cap, commission, or liquidity (i.e., bid-ask spread) concerns. 
A)  As much as 50% of small cap outperformance is associated with the January effect. 
B)  Small cap stocks underperform large cap stocks in recent years. 
C)  Small cap stock outperformance is a NASDAQ phenomenon, not NYSE. 
D)  Small cap stock outperformance is unaffected by micro-cap, commission, or liquidity (i.e., bid-ask spread) concerns.

Question 12

If an investor searches for patterns in security returns by examining various techniques applied to a set of data and then applying the technique that works, this is known as:

Accepted Answer

A)  fundamental analysis. 
B)  technical analysis. 
C)  random-walk theory. 
D)  data mining. 
A)  fundamental analysis. 
B)  technical analysis. 
C)  random-walk theory. 
D)  data mining.

Question 13

Under the weak form of the EMH, technical analysis relying on the history of price information is of no value in trying to outperform the future market.

Accepted Answer

A) True 
 B)False

Question 14

An investor who believes in the strong form of the EMH should be an active investor.

Accepted Answer

A) True 
 B)False

Question 15

If a market is inefficient, as new information is received about a security:

Accepted Answer

A)  nothing will happen. 
B)  the stock price will fall at first and then later rise. 
C)  there will be a lag in the adjustment of the stock price 
D)  there will be negative demand for the stock. 
A)  nothing will happen. 
B)  the stock price will fall at first and then later rise. 
C)  there will be a lag in the adjustment of the stock price 
D)  there will be negative demand for the stock.

Question 16

Insider trading is illegal in the U. S. How is this related to the strong form EMH?

Accepted Answer

If the strong form EMH were valid, insid

Question 17

The paradox of efficient markets is that

Accepted Answer

A)  even though markets are efficient overall, there are pockets of inefficiency. 
B)  news about anomalies makes the market less efficient. 
C)  investors attempting to uncover and use information about security prices help make the market more efficient (i.e., an "efficient amount of inefficiency") 
D)  investors make the market less efficient. 
A)  even though markets are efficient overall, there are pockets of inefficiency. 
B)  news about anomalies makes the market less efficient. 
C)  investors attempting to uncover and use information about security prices help make the market more efficient (i.e., an "efficient amount of inefficiency") 
D)  investors make the market less efficient.

Question 18

The January effect concerns:

Accepted Answer

A)  large cap stocks. 
B)  mid-cap stocks. 
C)  small cap stocks. 
D)  foreign stocks. 
A)  large cap stocks. 
B)  mid-cap stocks. 
C)  small cap stocks. 
D)  foreign stocks.

Question 19

Tests of the strong-form EMH include studies of corporate insiders and event studies.

Accepted Answer

A) True 
 B)False

Question 20

According to the behavioral finance, markets are always

Accepted Answer

A)  informationally efficient. 
B)  informationally inefficient. 
C)  weak-form efficient. 
D)  semi-strong form efficient. 
A)  informationally efficient. 
B)  informationally inefficient. 
C)  weak-form efficient. 
D)  semi-strong form efficient.

Exam 12: What Happens If Markets Are Efficient or Not?

Tests of the semistrong EMH include:

Which of the following is a market anomaly?

We can expect that the U.S. stock markets will be efficient for all of the following reasons EXCEPT:

All of the following are considered market anomalies EXCEPT:

All of the following conditions must occur for a market to be considered efficient except:

What is a market anomaly? Give examples of several market anomalies.

Which of the following announcements has NOT been involved in a direct test of the semi-strong form of the EMH?

Which of the following markets is generally considered to be the most efficient:

Select the FALSE statement concerning efficient markets.

According to the random walk hypothesis, price(s)

Which of the following is true regarding the size anomaly?

If an investor searches for patterns in security returns by examining various techniques applied to a set of data and then applying the technique that works, this is known as:

Under the weak form of the EMH, technical analysis relying on the history of price information is of no value in trying to outperform the future market.

An investor who believes in the strong form of the EMH should be an active investor.

If a market is inefficient, as new information is received about a security:

Insider trading is illegal in the U. S. How is this related to the strong form EMH?

The paradox of efficient markets is that

The January effect concerns:

Tests of the strong-form EMH include studies of corporate insiders and event studies.

According to the behavioral finance, markets are always

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