Question 1

Which of the following activities would be most useful in an efficient market?

Accepted Answer

A) buying and holding a diversified portfolio 
B) searching for patterns in charts based on stock price movements 
C) analyzing financial ratios based on accounting data 
D) buying only securities that have performed well in the recent past

Question 2

A type of mutual fund with particular appeal to investors who accept the efficient market hypothesis is

Accepted Answer

A) index fund. 
B) asset allocation fund. 
C) growth opportunities fund. 
D) emerging markets fund.

Question 3

One of the calendar effect market anomalies indicates that ________ in value during January.

Accepted Answer

A) large cap stocks tend to decline 
B) equities in general tend to decline 
C) small cap stocks tend to increase 
D) equities in general tend to increase

Question 4

The odd-lot theory supports buying into the market when the number of odd-lot trades rises.

Accepted Answer

A) True 
 B)False

Question 5

The anomaly known as post-earnings announcement drift or momentum describes the tendency of stock prices to rise or fall for several ________ after unexpectedly good or bad earnings announcements.

Accepted Answer

A) months 
B) weeks 
C) days 
D) hours

Question 6

Behavioral finance suggests that investors react to new information in an efficient manner such that security prices accurately reflect the new information.

Accepted Answer

A) True 
 B)False

Question 7

The new highs-new lows measure typically looks at a period of

Accepted Answer

A) 10 trading days. 
B) one month. 
C) 100 days. 
D) 52 weeks.

Question 8

The theory behind the mutual fund cash ratio is

Accepted Answer

A) mutual fund managers hold high levels of cash when they are optimistic about market conditions. 
B) when mutual fund managers hold high levels of cash, they must eventually buy stocks with it. 
C) when mutual fund managers hold low levels of cash they are pessimistic about market conditions. 
D) when market conditions are favorable, shareholders remit more cash than the managers can invest.

Question 9

Which one of the following activities is likely to be useful if the market is only weak form efficient?

Accepted Answer

A) attempting to find the best times to buy and sell 
B) attempting to find repeating pattern in stock price behavior 
C) attempting to determine if stock prices have upward or downward momentum 
D) None of the above would be useful.

Question 10

The stock market is considered strong when the market volume decreases in a declining market.

Accepted Answer

A) True 
 B)False

Question 11

If stock prices move randomly, charting and technical analysis are useful investment tools.

Accepted Answer

A) True 
 B)False

Question 12

The efficient market hypothesis rests on which of the following assumptions?
I.Information is widely available to all investors almost simultaneously.
II.Investors react quickly to new information.
III.Investors correctly interpret all available information.
IV.Events which affect the market occur randomly.

Accepted Answer

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

Question 13

Market volume is a function of market demand for and supply of stocks.

Accepted Answer

A) True 
 B)False

Question 14

One of the most popular tools of technical analysis is

Accepted Answer

A) charting. 
B) financial statement analysis. 
C) investor profiling. 
D) investor behavior analysis.

Question 15

Which of the following is true?

Accepted Answer

A) Historically, high P/E or growth stocks have outperformed low P/E or value stocks. 
B) Historically, low P/E or value stocks have outperformed high P/E or growth stocks. 
C) After adjusting for risk, high P/E or growth stocks and low P/E or value stocks have performed about the same over time. 
D) the P/E effect is limited to U.S.stocks.

Question 16

What is the ten-day simple moving average if the latest daily closing prices are $5, $7, $8, $5, $4, $6, $7, $8, $9, $10?

Accepted Answer

A) $6.00 
B) $6.90 
C) $7.67 
D) $10.00

Question 17

Evidence suggests that growth stocks tend to outperform value stocks.

Accepted Answer

A) True 
 B)False

Question 18

Price and volume of shares traded of Salem Industries on four consecutive days are shown below.

Compute Salem's on balance volume at the end of Thursday's trading.Assume last Friday's closing price was $26.50.

Accepted Answer

A) 200,000 
B) -40,000 
C) 180,000 
D) 360,000

Question 19

Which one of the following statements is correct concerning the mutual fund cash ratio (MFCR)?

Accepted Answer

A) The lower the value of the MFCR, the stronger the market will be in the future. 
B) The MFCR is equal to the cash inflows into money market funds divided by the cash flows out of money market funds. 
C) A low MFCR indicates that fund managers might be forced to sell securities should investors wish to withdraw funds. 
D) A MFCR greater than 12% is considered a bearish signal.

Question 20

From a behavioral perspective, the anomaly known as post-earnings announcement drift or momentum is best explained by

Accepted Answer

A) self attribution bias. 
B) loss aversion. 
C) representativeness. 
D) familiarity bias.

Exam 9: Market Efficiency and Behavioral Finance

Which of the following activities would be most useful in an efficient market?

A type of mutual fund with particular appeal to investors who accept the efficient market hypothesis is

One of the calendar effect market anomalies indicates that ________ in value during January.

The odd-lot theory supports buying into the market when the number of odd-lot trades rises.

The anomaly known as post-earnings announcement drift or momentum describes the tendency of stock prices to rise or fall for several ________ after unexpectedly good or bad earnings announcements.

Behavioral finance suggests that investors react to new information in an efficient manner such that security prices accurately reflect the new information.

The new highs-new lows measure typically looks at a period of

The theory behind the mutual fund cash ratio is

Which one of the following activities is likely to be useful if the market is only weak form efficient?

The stock market is considered strong when the market volume decreases in a declining market.

If stock prices move randomly, charting and technical analysis are useful investment tools.

Market volume is a function of market demand for and supply of stocks.

One of the most popular tools of technical analysis is

Which of the following is true?

What is the ten-day simple moving average if the latest daily closing prices are $5, $7, $8, $5, $4, $6, $7, $8, $9, $10?

Evidence suggests that growth stocks tend to outperform value stocks.

Price and volume of shares traded of Salem Industries on four consecutive days are shown below. Compute Salem's on balance volume at the end of Thursday's trading.Assume last Friday's closing price was $26.50.

Which one of the following statements is correct concerning the mutual fund cash ratio (MFCR) ?

From a behavioral perspective, the anomaly known as post-earnings announcement drift or momentum is best explained by