Question 1

The weather report says that a devastating and unexpected freeze is expected to hit Florida tonight during the peak of the citrus harvest.In an efficient market, one would expect the price of Florida Orange's stock to

Accepted Answer

A) drop immediately. 
B) unable to determine. 
C) increase immediately. 
D) gradually decline for the next several weeks.

Question 2

The main difference between the three forms of market efficiency is that

Accepted Answer

A) the definition of efficiency differs. 
B) the definition of excess return differs. 
C) the definition of prices differs. 
D) the definition of information differs.

Question 3

If you believe in the ________ form of the EMH, you believe that stock prices reflect all relevant information, including historical stock prices and current public information about the firm, but not information that is available only to insiders.

Accepted Answer

A) semistrong 
B) strong 
C) weak 
D) All of the options are correct.

Question 4

The abnormal return due to an event is estimated as the difference between

Accepted Answer

A) the stock's actual return and stock's expected return. 
B) the stock's actual return and the risk-free rate. 
C) the stock's expected return and a benchmark. 
D) the stock's actual return and a benchmark.

Question 5

Which of the following are used by fundamental analysts to determine proper stock prices? I) Trendlines
II. Earnings
III. Dividend prospects
IV. Expectations of future interest rates
V. Resistance levels

Accepted Answer

A) I, IV, and V 
B) I, II, and III 
C) II, III, and IV 
D) II, IV, and V

Question 6

Womack focuses on changes in analysts' recommendations and finds that

Accepted Answer

A) positive changes are associated with decreased increased stock prices of about 5%, and positive changes result in average price decreases of 11%. 
B) positive changes are associated with increased stock prices of about 5%, and negative changes result in average price decreases of 11%. 
C) positive changes are associated with increased stock prices of about 11%, and negative changes result in average price decreases of 5%. 
D) negative changes are associated with increased stock prices of about 5%, and positive changes result in average price decreases of 11%.

Question 7

LJP Corporation just announced yesterday that it would undertake an international joint venture.You observe that LJP had an abnormal return of 3% yesterday.This suggests that

Accepted Answer

A) the market is not efficient. 
B) LJP stock will probably rise in value again tomorrow. 
C) investors view the international joint venture as bad news. 
D) investors view the international joint venture as good news.

Question 8

Google has a beta of 1.0.The annualized market return yesterday was 11%, and the risk-free rate is currently 5%.You observe that Google had an annualized return yesterday of 14%.Assuming that markets are efficient, this suggests that

Accepted Answer

A) bad news about Google was announced yesterday. 
B) good news about Google was announced yesterday. 
C) no news about Google was announced yesterday. 
D) interest rates rose yesterday.

Question 9

When Maurice Kendall first examined stock price patterns in 1953, he found that

Accepted Answer

A) certain patterns tended to repeat within the business cycle. 
B) there were no predictable patterns in stock prices. 
C) stocks whose prices had increased consistently for one week tended to have a net decrease the following week. 
D) stocks whose prices had increased consistently for one week tended to have a net increase the following week.

Question 10

If you believe in the _________ form of the EMH, you believe that stock prices reflect all available information, including information that is available only to insiders.

Accepted Answer

A) semistrong 
B) strong 
C) weak 
D) All of the options are correct.

Question 11

If you believe in the _______ form of the EMH, you believe that stock prices only reflect all information that can be derived by examining market trading data, such as the history of past stock prices, trading volume or short interest.

Accepted Answer

A) semistrong 
B) strong 
C) weak 
D) All of the options are correct.

Question 12

An event study describes a technique of empirical financial research that

Accepted Answer

A) enables an observer to assess the impact of a particular event on a firm's risk. 
B) enables an observer to assess the impact of a particular event on a firm's standard deviation. 
C) enables an observer to assess the impact of a particular event on a firm's stock price. 
D) enables an observer to assess the impact of a firm's return on risk of the market.

Question 13

Patell and Wolfson show that most of the stock price response to corporate dividend or earnings announcements occurs

Accepted Answer

A) within 10 hours of the announcement. 
B) within 10 days of the announcement. 
C) within 10 minutes of the announcement. 
D) within 10 seconds of the announcement.

Question 14

A market decline of 23% on a day when there is no significant macroeconomic event ______ consistent with the EMH because ________.

Accepted Answer

A) would be; it was a clear response to macroeconomic news 
B) would be; it was not a clear response to macroeconomic news 
C) would not be; it was a clear response to macroeconomic news 
D) would not be; it was not a clear response to macroeconomic news This happened on October 19, 1987.

Question 15

One of the most commonly heard components of technical analysis is the notion of a resistance level, which refers to

Accepted Answer

A) price levels below which it is unlikely for them to fall. 
B) price levels above which it is difficult for stock prices to rise. 
C) stock performance over a recent period to performance of the market or other stocks in the same industry. 
D) the present discounted value of all the payments a stockholder will receive from each share of stock.

Question 16

Music Doctors just announced yesterday that its first quarter sales were 35% higher than last year's first quarter.You observe that Music Doctors had an abnormal return of -2% yesterday.This suggests that

Accepted Answer

A) the market is not efficient. 
B) Music Doctors stock will probably rise in value tomorrow. 
C) investors expected the sales increase to be larger than what was actually announced. 
D) investors expected the sales increase to be smaller than what was actually announced.

Question 17

_________ below which it is difficult for the market to fall.

Accepted Answer

A) An intrinsic value is a value 
B) A resistance level is a value 
C) A support level is a value 
D) An intrinsic value and a resistance level are values

Question 18

When Maurice Kendall examined the patterns of stock returns in 1953, he concluded that the stock market was __________.Now, these random price movements are believed to be _________.

Accepted Answer

A) inefficient; the effect of a well-functioning market 
B) efficient; the effect of an inefficient market 
C) inefficient; the effect of an inefficient market 
D) efficient; the effect of a well-functioning market

Question 19

Matthews Corporation has a beta of 1.2.The annualized market return yesterday was 13%, and the risk-free rate is currently 5%.You observe that Matthews had an annualized return yesterday of 17%.Assuming that markets are efficient, this suggests that

Accepted Answer

A) bad news about Matthews was announced yesterday. 
B) good news about Matthews was announced yesterday. 
C) no news about Matthews was announced yesterday. 
D) interest rates rose yesterday.

Question 20

Which of the following are used by technical analysts to determine proper stock prices? I) Trendlines
II. Earnings
III. Dividend prospects
IV. Expectations of future interest rates
V. Resistance levels

Accepted Answer

A) I and V 
B) I, II, and III 
C) II, III, and IV 
D) II, IV, and V

Exam 11: The Efficient Market Hypothesis

The weather report says that a devastating and unexpected freeze is expected to hit Florida tonight during the peak of the citrus harvest.In an efficient market, one would expect the price of Florida Orange's stock to

The main difference between the three forms of market efficiency is that

If you believe in the ________ form of the EMH, you believe that stock prices reflect all relevant information, including historical stock prices and current public information about the firm, but not information that is available only to insiders.

The abnormal return due to an event is estimated as the difference between

Which of the following are used by fundamental analysts to determine proper stock prices? I) Trendlines II. Earnings III. Dividend prospects IV. Expectations of future interest rates V. Resistance levels

Womack focuses on changes in analysts' recommendations and finds that

LJP Corporation just announced yesterday that it would undertake an international joint venture.You observe that LJP had an abnormal return of 3% yesterday.This suggests that

Google has a beta of 1.0.The annualized market return yesterday was 11%, and the risk-free rate is currently 5%.You observe that Google had an annualized return yesterday of 14%.Assuming that markets are efficient, this suggests that

When Maurice Kendall first examined stock price patterns in 1953, he found that

If you believe in the _________ form of the EMH, you believe that stock prices reflect all available information, including information that is available only to insiders.

If you believe in the _______ form of the EMH, you believe that stock prices only reflect all information that can be derived by examining market trading data, such as the history of past stock prices, trading volume or short interest.

An event study describes a technique of empirical financial research that

Patell and Wolfson show that most of the stock price response to corporate dividend or earnings announcements occurs

A market decline of 23% on a day when there is no significant macroeconomic event consistent with the EMH because __.

One of the most commonly heard components of technical analysis is the notion of a resistance level, which refers to

Music Doctors just announced yesterday that its first quarter sales were 35% higher than last year's first quarter.You observe that Music Doctors had an abnormal return of -2% yesterday.This suggests that

_________ below which it is difficult for the market to fall.

When Maurice Kendall examined the patterns of stock returns in 1953, he concluded that the stock market was __.Now, these random price movements are believed to be _.

Matthews Corporation has a beta of 1.2.The annualized market return yesterday was 13%, and the risk-free rate is currently 5%.You observe that Matthews had an annualized return yesterday of 17%.Assuming that markets are efficient, this suggests that

Which of the following are used by technical analysts to determine proper stock prices? I) Trendlines II. Earnings III. Dividend prospects IV. Expectations of future interest rates V. Resistance levels