Question 1

Which of the following statements is true regarding the efficiency of foreign securities and foreign markets?

Accepted Answer

A)  Foreign securities tend to be more analyzed than U.S. securities. 
B)  Foreign markets tend to be less efficient than U.S. markets. 
C)  Foreign markets often lag behind U.S. markets as much as 6 months. 
D)  Foreign markets tend to be as efficient as U.S. markets.

Question 2

An efficient market is defined as one in which prices of securities fully reflect all known ______________________ quickly and accurately.

Accepted Answer

The answer of An efficient market is defined as one...

Question 3

Which of the following is frequently used to test the semistrong form of the EMH?

Accepted Answer

A)  statistical tests of stock-price change independence. 
B)  tests of specific trading rules that use past price data. 
C)  event studies. 
D)  insider returns.

Question 4

Evidence concerning the "overreaction hypothesis" indicates that

Accepted Answer

A)  most overreactions occur within the first two days of an economic event. 
B)  investors are consistently risk-averse value maximizers. 
C)  the market is even more efficient than the weak-form EMH proposes. 
D)  investors sometimes act rationally.

Question 5

The evidence obtained on weak-form efficiency casts serious doubts on fundamental analysis.

Accepted Answer

A) True 
 B)False

Question 6

According to the weak form of the EMH,

Accepted Answer

A)  successive price changes are biased. 
B)  successive price changes are dependent. 
C)  specified trading rules can prove to be extremely useful in generating excess returns. 
D)  successive price changes are independent.

Question 7

Which of the following is NOT a test of semi-strong form efficiency?

Accepted Answer

A)  Insider transactions 
B)  Stock splits 
C)  Accounting changes 
D)  Dividend announcements

Question 8

According to the text, the most compelling evidence about relative market efficiency is: (1) __________% of large cap equity funds failed to perform as well as the S&P 500 index; and (2) the vast majority of __________________ fail to achieve top half performance rankings or outperform their index, especially on a consistent basis.

Accepted Answer

The answer of According to the text, the most compelling...

Question 9

Calculate the SUE for a stock with expected second quarter earnings of $1.00 and actual second quarter earnings of $0.75. The standardization variable is 0.20. Is this stock one of interest to investors using the SUE technique?

Accepted Answer

The answer of Calculate the SUE for a stock with...

Question 10

Technical analysis involves the use of historic price and volume information to predict future price movements. What does the EMH say about technical analysis?

Accepted Answer

The answer of Technical analysis involves the use of historic...

Question 11

The Auto Company (AC) had expected returns and realized returns for the periods shown below:
 $\begin{array}{ccc}
\text { Period } & \text { Expected Return } & \text { Actual Return } \
\hline 1 & 15 \% & 16 \% \
215 \% & 13 \% & \
3 & 15 \% & 17 \% \
415 \% & 15 \% &
\end{array}$
 Calculate the cumulative abnormal return for the four periods.

Accepted Answer

The answer of The Auto Company (AC) had expected returns...

Question 12

If securities are fairly priced, then the portfolio manager is unlikely to be able to identify undervalued stocks. What other activities could portfolio managers perform?

Accepted Answer

The answer of If securities are fairly priced, then the...

Question 13

Value investing implies investors should always buy stocks with the lowest P/E ratios.

Accepted Answer

A) True 
 B)False

Question 14

The efficiency of markets is driven largely by the vast number of participants and their quick and access to information.

Accepted Answer

A) True 
 B)False

Question 15

An oil company's P/E ratio is 15; its projected EPS is $8; and its price is $120. Expectations are that a new field will add $2 EPS the next year. If the P/E remains constant, what should happen to the price in an efficient market? How soon? Are investors that pay the price after adjustment paying a fair price and are they expected to earn a normal return?

Accepted Answer

The answer of An oil company's P/E ratio is 15;...

Question 16

All "known" information means:

Accepted Answer

A)  past information only. 
B)  past and current information. 
C)  past, current, and inferred information. 
D)  past, current, inferred and relative information.

Question 17

Studies cited in the text show technical trading rules based on price and volume data lead to investment timing decisions that

Accepted Answer

A)  consistently outperform the buy-and-hold strategy. 
B)  minimize brokerage costs. 
C)  do not provide excess returns after all brokerage costs are deducted. 
D)  do provide excess returns to most investors who follow the rules faithfully.

Question 18

The random walk hypothesis is most related to the:

Accepted Answer

A)  weak-form EMH 
B)  semistrong-form EMH 
C)  semiweak-form EMH 
D)  strong-form EMH

Question 19

Calendar market anomalies include the neglected firm effect, which means few analysts follow the stock, or few institutions own the stock.

Accepted Answer

A) True 
 B)False

Question 20

What forms of EMH are strongly supported by economic studies? What is some evidence?

Accepted Answer

The answer of What forms of EMH are strongly supported...

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

Which of the following statements is true regarding the efficiency of foreign securities and foreign markets?

An efficient market is defined as one in which prices of securities fully reflect all known ______________________ quickly and accurately.

Which of the following is frequently used to test the semistrong form of the EMH?

Evidence concerning the "overreaction hypothesis" indicates that

The evidence obtained on weak-form efficiency casts serious doubts on fundamental analysis.

According to the weak form of the EMH,

Which of the following is NOT a test of semi-strong form efficiency?

Calculate the SUE for a stock with expected second quarter earnings of $1.00 and actual second quarter earnings of $0.75. The standardization variable is 0.20. Is this stock one of interest to investors using the SUE technique?

Technical analysis involves the use of historic price and volume information to predict future price movements. What does the EMH say about technical analysis?

If securities are fairly priced, then the portfolio manager is unlikely to be able to identify undervalued stocks. What other activities could portfolio managers perform?

Value investing implies investors should always buy stocks with the lowest P/E ratios.

The efficiency of markets is driven largely by the vast number of participants and their quick and access to information.

All "known" information means:

Studies cited in the text show technical trading rules based on price and volume data lead to investment timing decisions that

The random walk hypothesis is most related to the:

Calendar market anomalies include the neglected firm effect, which means few analysts follow the stock, or few institutions own the stock.

What forms of EMH are strongly supported by economic studies? What is some evidence?