Question 1

Basu found that firms with high P/E ratios ________.

Accepted Answer

A)   earned higher average returns than firms with low P/E ratios
B)   earned the same average returns as firms with low P/E ratios
C)   earned lower average returns than firms with low P/E ratios
D)   had higher dividend yields than firms with low P/E ratiosE) A) and B)
F) C) and D)

Question 2

Most people would readily agree that the stock market is not ________.

Accepted Answer

A)   weak-form efficient
B)   semistrong-form efficient
C)   strong-form efficient
D)   efficient at allE) A) and B)
F) A) and C)

Question 3

Most of the stock price response to a corporate earnings or dividend announcement occurs within ________.

Accepted Answer

A)   about 30 seconds
B)   about 10 minutes
C)   6 months
D)   2 yearsE) A) and B)
F) B) and D)

Question 4

Which of the following is not an issue that is central to the debate regarding market efficiency?

Accepted Answer

A)   the magnitude issue
B)   the tax-loss selling issue
C)   the lucky event issue
D)   the selection bias issueE) A) and B)
F) A) and C)

Question 5

Fundamental analysis is likely to yield best results for ________.

Accepted Answer

A)   NYSE stocks
B)   neglected stocks
C)   stocks that are frequently in the news
D)   fast-growing companiesE) B) and D)
F) C) and D)

Question 6

Which of the following stock price observations would appear to contradict the weak form of the efficient market hypothesis?

Accepted Answer

A)   The average rate of return is significantly greater than zero.
B)   The correlation between the market return one week and the return the following week is zero.
C)   You could have consistently made superior returns by buying stock after a 10% rise in price and selling after a 10% fall.
D)   You could have consistently made superior returns by forecasting future earnings performance with your new Crystal Ball forecast methodology.E) B) and D)
F) B) and C)

Question 7

In an efficient market and for an investor who believes in a passive approach to investing, what is the primary duty of a portfolio manager?

Accepted Answer

A)   accounting for results
B)   diversification
C)   identifying undervalued stocks
D)   no need for a portfolio managerE) All of the above
F) A) and B)

Question 8

Jaffe found that stock prices ________ after insiders intensively bought shares and ________ after insiders intensively sold shares.

Accepted Answer

A)   decreased; decreased
B)   decreased; increased
C)   increased; decreased
D)   increased; increasedE) None of the above
F) All of the above

Question 9

A day trade with an average stock holding period of under 8 minutes might be most closely associated with which trading philosophy?

Accepted Answer

A)   EMH
B)   fundamental analysis
C)   strong-form market efficiency
D)   technical analysisE) A) and C)
F) A) and B)

Question 10

The semistrong-form of the efficient market hypothesis implies that ________ generate abnormal returns and ________ generate abnormal returns.

Accepted Answer

A)   technical analysis cannot; fundamental analysis can
B)   technical analysis can; fundamental analysis can
C)   technical analysis can; fundamental analysis cannot
D)   technical analysis cannot; fundamental analysis cannotE) A) and C)
F) A) and D)

Question 11

Which of the following is not a topic related to the debate over market efficiency?

Accepted Answer

A)   IPO results
B)   lucky event issue
C)   magnitude issue
D)   selection biasE) A) and B)
F) A) and C)

Question 12

According to Markowitz and other proponents of modern portfolio theory, which of the following activities would not be expected to produce any benefits?

Accepted Answer

A)   diversifying
B)   investing in treasury bills
C)   investing in stocks of utility companies
D)   engaging in active portfolio management to enhance returnsE) B) and C)
F) All of the above

Question 13

Random price movements indicate ________.

Accepted Answer

A)   irrational markets
B)   that prices cannot equal fundamental values
C)   that technical analysis to uncover trends can be quite useful
D)   that markets are functioning efficientlyE) C) and D)
F) All of the above

Question 14

Del Guercio and Reuter (2014)  find

Accepted Answer

A)   direct -purchase mutual fund investors outperform those who purchase through brokers.
B)   broker -purchase mutual fund investors outperform those who direct purchase directly.
C)   both types of investors did as well or better than index funds.
D)   both types of investors underperformed index funds.E) B) and D)
F) All of the above

Question 15

Choosing stocks by searching for predictable patterns in stock prices is called ________.

Accepted Answer

A)   fundamental analysis
B)   technical analysis
C)   index management
D)   random-walk investingE) None of the above
F) C) and D)

Question 16

The strong form of the EMH states that ________ must be reflected in the current stock price.

Accepted Answer

A)   all security price and volume data
B)   all publicly available information
C)   all information, including inside information
D)   all costless informationE) B) and D)
F) B) and C)

Question 17

Proponents of the EMH typically advocate ________.

Accepted Answer

A)   a conservative investment strategy
B)   a liberal investment strategy
C)   a passive investment strategy
D)   an aggressive investment strategyE) A) and B)
F) All of the above

Question 18

Stock market analysts have tended to be ________ in their recommendations to investors.

Accepted Answer

A)   slightly overly optimistic
B)   overwhelmingly optimistic
C)   slightly overly pessimistic
D)   overwhelmingly pessimisticE) All of the above
F) C) and D)

Question 19

The weak form of the EMH states that ________ must be reflected in the current stock price.

Accepted Answer

A)   all past information, including security price and volume data
B)   all publicly available information
C)   all information, including inside information
D)   all costless informationE) None of the above
F) All of the above

Question 20

Testing many different trading rules until you find one that would have worked in the past is called ________.

Accepted Answer

A)   data mining
B)   perceived patterning
C)   pattern searching
D)   behavioral analysisE) All of the above
F) B) and C)

Exam 8: The Efficient Market Hypothesis

The strong form of the EMH states that ________ must be reflected in the current stock price.

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Most of the stock price response to a corporate earnings or dividend announcement occurs within ________.

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Random price movements indicate ________.

Correct AnswerverifiedShow Answer

A day trade with an average stock holding period of under 8 minutes might be most closely associated with which trading philosophy?

Correct AnswerverifiedShow Answer

Basu found that firms with high P/E ratios ________.

Correct AnswerverifiedShow Answer

Del Guercio and Reuter (2014) find

Correct AnswerverifiedShow Answer

Fundamental analysis is likely to yield best results for ________.

Correct AnswerverifiedShow Answer

The semistrong-form of the efficient market hypothesis implies that ________ generate abnormal returns and ________ generate abnormal returns.

Correct AnswerverifiedShow Answer

Stock market analysts have tended to be ________ in their recommendations to investors.

Correct AnswerverifiedShow Answer

Most people would readily agree that the stock market is not ________.

Correct AnswerverifiedShow Answer

Proponents of the EMH typically advocate ________.

Correct AnswerverifiedShow Answer

Which of the following is not an issue that is central to the debate regarding market efficiency?

Correct AnswerverifiedShow Answer

Testing many different trading rules until you find one that would have worked in the past is called ________.

Correct AnswerverifiedShow Answer

Choosing stocks by searching for predictable patterns in stock prices is called ________.

Correct AnswerverifiedShow Answer

Jaffe found that stock prices ________ after insiders intensively bought shares and ________ after insiders intensively sold shares.

Correct AnswerverifiedShow Answer

According to Markowitz and other proponents of modern portfolio theory, which of the following activities would not be expected to produce any benefits?

Correct AnswerverifiedShow Answer

Which of the following stock price observations would appear to contradict the weak form of the efficient market hypothesis?

Correct AnswerverifiedShow Answer

In an efficient market and for an investor who believes in a passive approach to investing, what is the primary duty of a portfolio manager?

Correct AnswerverifiedShow Answer

The weak form of the EMH states that ________ must be reflected in the current stock price.

Correct AnswerverifiedShow Answer

Which of the following is not a topic related to the debate over market efficiency?

Correct AnswerverifiedShow Answer

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The semistrong-form of the efficient market hypothesis implies that generate abnormal returns and generate abnormal returns.

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Jaffe found that stock prices after insiders intensively bought shares and after insiders intensively sold shares.

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