Deck 4: Efficient Markets, Investment Value, and Market Price

Question 1

The largest volume of share trading will occur when the price

A) allows all limit orders to be filled.
B) equates the supply of shares with the demand for shares.
C) sets the quantity demanded as greater than the supply.
D) minimizes transaction costs.

Answer 1

B

Question 2

A description of the quantities of a security that an investor is prepared to sell at various possible prices is called a _______ schedule.

A) elasticity of demand
B) commission
C) supply-to-sell
D) demand-to-buy

Answer 2

C

Question 3

A level of market efficiency in which all relevant information both public and private is fully and immediately reflected in security prices is called a ______ efficient market.

A) strong-form
B) semistrong-form
C) weak-form
D) perfect-form

Answer 3

A

Question 4

Major markets in thare
A) strong-form efficient.

A) weak-form efficient.
B) inefficient.
B) none of the above

Question 5

The demand-to-buy schedule for shares assumes

A) the higher the price, more shares will be demanded.
B) only market orders are acceptable.
C) the higher the price, less shares will be demanded.
D) the demand is fixed and not affected by the price.

Question 6

A market for securities in which information is quickly and widely disseminated, thereby allowing each security's price to adjust rapidly in an unbiased manner to new information so that the price reflects investment value is known as a(an) ____ efficient market.

A) externally
B) allocationally
C) externally
D) globally

Question 7

A market for securities in which brokers and dealers compete fairly so that the cost of transacting is low and the speed of execution is high is known as a(an) _____ efficient market.

A) externally
B) allocationally
C) globally
D) internally

Question 8

A weak-form market assumes security prices reflect

A) all information, both public and private.
B) no information, prices are random.
C) information about previous prices.
D) information about future dividends.

Question 9

If an investor feels more optimistic about the future of a stock, he will

A) shift his demand-to-hold schedule to the right.
B) make his demand-to-hold schedule horizontal.
C) leave his demand-to-hold schedule unchanged.
D) make his demand-to-hold schedule vertical.

Question 10

A stock with an elastic demand-to-hold schedule

A) has a nearly vertical schedule.
B) is a unique security.
C) will not have a change in quantity demanded if the price falls.
D) has a nearly flat schedule.

Question 11

A description of the quantities of a security that an investor is prepared to purchase at various possible prices is called a ______ schedule.

A) supply-to-sell
B) elasticity of demand
C) commission
D) demand-to-buy

Question 12

A level of market efficiency in which all relevant publicly available information is fully and immediately reflected in security prices is called a ______ efficient market.
A) semistrong-form

A) strong-form
B) weak-form
C) perfect-form

Question 13

The present value of a security's future prospects is its

A) book value.
B) investment value.
C) dividend value.
D) pessimistic value.

Question 14

When a series of prices, in general, represents a situation in which changes in the value of the prices are independent and identically distributed, we refer to the series as a

A) moving average series
B) lagged time series
C) random walk with drift
D) random walk.

Question 15

Testing market efficiency is often done using an examination of the performance of

A) professional investors
B) growth fund managers
C) academic researchers
D) market anomalies

Question 16

A level of market efficiency in which all previous security price and volume data are fully and immediately reflected in current security prices is called a ____ efficient market.

A) strong
B) semi-strong a
C) weak-form
D) perfectly

Question 17

A market for securities in which those firms with the most promising investment opportunities have access to the needed funds is known as a(an) ____ efficient market.

A) internally
B) allocationally
C) externally
D) globally

Question 18

The theory that states that daily stock price changes are independent and identically distributed is

A) semi-strong efficient.
B) efficient.
C) random walk.
D) weak efficient.

Question 19

A situation in which security price changes follow an independent and identically distributed process, except for that those price changes are expected to rise over time, is known as a
A) moving average series

A) random walk with drift
B) lagged time series
B) random walk

Question 20

Testing for market efficiency is often conducted using _____ where it can be seen just how fast security prices actually react to the release of information.

A) a pattern search
B) event studies
C) the investment record of professional investors.
D) the up-tick rule

Question 21

Short sellers

A) are as frequent as people who invest long.
B) feel the marginal value is above the market price.
C) set their marginal value at the market price.
D) have only a small impact on market prices.

Question 22

Event studies to test for market efficiency would NOT be concerned with the following:

A) stock splits and dividend announcements
B) the January effect
C) mergers and acquisitions
D) divestitures

Question 23

In a perfectly efficient market

A) investors who have the resources should rely on investment advisors for pricing decisions.
B) investment analysts will be highly regarded and actively pursued for their advice.
C) professional investors should fare no better in stock selection than the uninformed investors.
D) professional investors have an edge in generating abnormally high returns.

Question 24

Weak-form efficient markets use all of the following EXCEPT

A) yesterday's prices to formulate buying decisions
B) any information to formulate selling decisions
C) last week's prices to formulate selling decisions
D) any previous prices to formulate buy or sell decisions

Question 25

Which one of the following methods is NOT used to test for market efficiency?

A) event studies
B) investment newsletter surveys
C) pattern searches
D) professional investment performance

Question 26

The Securities and Exchange Commission prefers to address _____ efficiency by promoting rules that affect the design and operations of the markets.

A) allocational
B) internal
C) external
D) investment

Question 27

In a perfectly efficient market with random price changes,

A) changes in prices occur which may appear to be positive as well as negative
B) price behavior may often be irrational
C) mispriced securities will not occur
D) highly alert investors will not have profit opportunities

Question 28

Empirical research has most often shown that securities markets fall into the ____ category of market efficiency.

A) strong form
B) semistrong form
C) weak form
D) mostly semistrong from

Question 29

In a perfectly efficient market

A) it is extremely unlikely that investors will profit based on technical trading rules.
B) some people will continually earn high returns.
C) profit opportunities are eliminated before the entire market can react.
D) any gains based on patterns in past prices are merely due to luck.

Question 30

Firms with the most promising investment opportunities are given ready access to needed funds in an ____ efficient market.

A) allocationally
B) internally
C) externally
D) investment-

Question 31

The random walk with drift theory of stock prices holds that

A) stock price changes are independently and identically distributed
B) the current price change is not influenced by the previous price change
C) the error term is independently and identically distributed
D) stock prices have a tendency to rise over time.

Question 32

Securities with few close substitutes are considered unique and this relation means that the aggregate demand-to-buy schedule will be

A) perfectly elastic
B) somewhat elastic
C) perfectly inelastic
D) relatively inelastic

Question 33

In perfectly efficient markets, the investors who have profited in the past

A) have a higher probability of profiting in the future.
B) were most often lucky.
C) learn valuable trading rules for the future.
D) are no more likely to do better in the future.

Question 34

Short sellers not receiving the revenues from the security sale

A) means the investor's pessimism will have less impact on the market.
B) means investors are willing to sell short at lower prices.
C) results in a smooth, downward sloping demand-to-hold curve.
D) results in a flat demand-to-hold curve.

Question 35

Which one of the following would best justify an investor hiring an active portfolio manager even though markets have been shown to be semistrong-form efficient?

A) the existence of market "anomalies" have been discovered
B) analysts have incorporated relevant information quickly and accurately
C) technical trading rules have been proven to be ineffective
D) the results from studies on efficiency are debatable and not universally accepted