Combined Exam 2
A common strategy for passive management is A)creating an index fund. B)creating a small firm fund. C)creating an investment club. D)creating an index fund and creating an investment club. E)creating a small firm fund and creating an investment club.
A
An example of ________ is that a person may reject an investment when it is posed in terms of risk surrounding potential gains, but may accept the same investment if it is posed in terms of risk surrounding potential losses. A)framing B)regret avoidance C)overconfidence D)conservatism
A
Banz (1981) found that, on average, the risk-adjusted returns of small firms A)were higher than the risk-adjusted returns of large firms. B)were the same as the risk-adjusted returns of large firms. C)were lower than the risk-adjusted returns of large firms. D)were unrelated to the risk-adjusted returns of large firms. E)were negative.
A
Barber and Odean (2000) ranked portfolios by turnover and report that the difference in return between the highest and lowest turnover portfolios is 7% per year. They attribute this to A)overconfidence. B)framing. C)regret avoidance. D)sample neglect.
A
Basu (1977, 1983) found that firms with low P/E ratios A)earned higher average returns than firms with high P/E ratios. B)earned the same average returns as firms with high P/E ratios. C)earned lower average returns than firms with high P/E ratios. D)had higher dividend yields than firms with high P/E ratios.
A
Billy Bean and his success chronicled in Moneyball by Michael Lewis illustrates that teams were________________. A) mispricing the value of players. B) paying too much for players. C) hampered by the salary cap. D) able to win using statistical analysis.
A
Chartists practice: A)technical analysis. B)fundamental analysis. C)regression analysis. D)insider analysis. E)psychoanalysis.
A
DeBondt and Thaler believe that high P/E result from investors': A)earnings expectationsthat are too extreme. B)earnings expectations that are not extreme enough. C)stock-price expectations that are too extreme. D)stock-price expectations that are not extreme enough.
A
Errors in information processing can lead investors to misestimate A)true probabilities of possible events and associated rates of return. B)occurrence of possible events. C)only possible rates of return. D)the effect of accounting manipulation. E)fraud.
A
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. A)semistrong B)strong C)weak D)All of the options are correct. E)None of the options are correct.
A
Jaffe (1974) found that stock prices _________ after insiders intensively sold shares. A)decreased B)did not change C)increased D)became extremely volatile E)became much less volatile
A
Music Doctors has a beta of 2.25. The annualized market return yesterday was 12%, and the risk-free rate is currently 4%. You observe that Music Doctors had an annualized return yesterday of 15%. Assuming that markets are efficient, this suggests that: A) bad news about Music Doctors was announced yesterday. B) good news about Music Doctors was announced yesterday. C) no news about Music Doctors was announced yesterday. D) interest rates rose yesterday. E) interest rates fell yesterday.
A
On November 22, the stock price of Coca Cola was $69.50, and the retailer stock index was 600.30. On November 25, the stock price of Coca Cola was $70.25, and the retailer stock index was 605.20. Consider the ratio of Coca Cola to the retailer index on November 22 and November 25. Coca Cola is _______ the retail industry, and technical analysts who follow relative strength would advise _______ the stock. A)outperforming; buying B)outperforming; selling C)underperforming; buying D)underperforming; selling E)equally performing; neither buying nor selling
A
Patell and Woflson (1984) report that most of the stock-price response to corporate dividend or earnings announcements occurs within ____________ of the announcement.: A)10 minutes B)45 minutes C)2 hours D)4 hours E)2 trading days
A
Psychologists have found that people who make decisions that turn out badly blame themselves more when that decision was unconventional. The name for this phenomenon is: A)regret avoidance. B)framing. C)mental accounting. D)overconfidence. E)obnoxicity.
A
Statman (1977) argues that ________ is consistent with some investors' irrational preference for stocks with high cash dividends and with a tendency to hold losing positions too long. A)mental accounting B)regret avoidance C)overconfidence D)conservatism
A
The premise of behavioral finance is that: A)conventional financial theory ignores how real people make decisions and that people make a difference. B)conventional financial theory considers how emotional people make decisions, but the market is driven by rational utility-maximizing investors. C)conventional financial theory should ignore how the average person makes decisions because the market is driven by investors who are much more sophisticated than the average person. D)conventional financial theory considers how emotional people make decisions, but the market is driven by rational utility-maximizing investors and should ignore how the average person makes decisions because the market is driven by investors who are much more sophisticated than the average person. E)None of the options are correct.
A
The put/call ratio is computed as ____________, and higher values are considered ____________ signals. A)the number of outstanding put options divided by outstanding call options; bullish or bearish B)the number of outstanding put options divided by outstanding call options; bullish C)the number of outstanding put options divided by outstanding call options; bearish D)the number of outstanding call options divided by outstanding put options; bullish E)the number of outstanding call options divided by outstanding put options; bearish
A
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: A)drop immediately. B)unable to determine. C)increase immediately. D)gradually decline for the next several weeks. E)gradually increase for the next several weeks.
A
Using finance terminology, Billy Bean discovered a better estimate of ________________. A)intrinsic value. B)inflation. C)market efficiency. D)discount rates.
A
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 _________. 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 E)irrational; even more irrational than before
A
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 A) I and V B) I, II, and III C) II, III, and IV D) II, IV, and V E) All of the items are used by fundamental analysts.
A
__________ can lead investors to misestimate the true probabilities of possible events or associated rates of return. A)Information processing errors B)Framing errors C)Mental accounting errors D)Regret avoidance
A
A trin ratio of less than 1.0 is considered as a: A)bearish signal B)bullish signal. C)bearish signal by some technical analysts and a bullish signal by other technical analysts. D)bullish signal by some fundamentalists. E)bearish signal by some technical analysts, a bullish signal by other technical analysts, and a bullish signal by some fundamentalists.
B
An example of ________ is that it is not as painful to have purchased a blue-chip stock that decreases in value as it is to lose money on an unknown start-up firm. A)mental accounting B)regret avoidance C)overconfidence D)conservatism
B
Arbitrageurs may be unable to exploit behavioral biases due to I) fundamental risk. II) implementation costs. III) model risk. IV) conservatism. V) regret avoidance. A)I and II only B)I, II, and III C)I, II, III, and V D)II, III, and IV E)IV and V
B
Boeing has a beta of 1.0. The annualized market return yesterday was 11%, and the risk-free rate is currently 5%. You observe that Boeing had an annualized return yesterday of 14%. Assuming that markets are efficient, this suggests that: A) bad news about Boeing was announced yesterday. B) good news about Boeing was announced yesterday. C) no news about Boeing was announced yesterday. D) interest rates rose yesterday. E) interest rates fell yesterday.
B
Conventional theories presume that investors ____________, and behavioral finance presumes that they ____________. A)are irrational; are irrational B)are rational; may not be rational C)are rational; are rational D)may not be rational; may not be rational E)may not be rational; are rational
B
Expert firms must maintain detailed records of conversations in the event authorities decide to investigate ____________. A)tax evasion. B)insider trading. C)excess profits. D)FDA violations. E)SEC violations.
B
Fama and French (1992) found that the stocks of firms within the highest decile of book-to-market ratios had an average annual return of _______, while the stocks of firms within the lowest decile of book-to-market ratios had an average annual return of ________. A) 15.6%; 13.1% B) 17.2%; 11.1% C) 13.2%; 16.4% D) 11.1%; 17.2%
B
Forecasting errors are potentially important because A)research suggests that people underweight recent information. B)research suggests that people overweight recent information. C)research suggests that people correctly weight recent information. D)research suggests that people either underweight recent information or overweight recent information depending on whether the information was good or bad. E)None of the options are correct.
B
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. A)semistrong B)strong C)weak D)All of the options are correct. E)None of the options are correct.
B
In regard to moving averages, it is considered to be a ____________ signal when market price breaks through the moving average from ____________. A) bearish; below B) bullish; below C) bullish; above D) None of the options are correct.
B
Kahneman and Tversky (1973) report that __________ and __________. A) people give too little weight to recent experience compared to prior beliefs; tend to make forecasts that are too extreme given the uncertainty of their information B) people give too much weight to recent experience compared to prior beliefs; tend to make forecasts that are too extreme given the uncertainty of their information C) people give too little weight to recent experience compared to prior beliefs; tend to make forecasts that are not extreme enough given the uncertainty of their information D) people give too much weight to recent experience compared to prior beliefs; tend to make forecasts that are not extreme enough given the uncertainty of their information
B
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 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. E)interest rates fell yesterday.
B
Studies of stock price reactions to news are called A)reaction studies. B)event studies. C)drift studies. D)reaction studies and event studies. E)event studies and drift studies
B
The stock market follows a: A)nonrandom walk. B)submartingale. C)predictable pattern that can be exploited. D)nonrandom walk and predictable pattern that can be exploited. E)submartingale and predictable pattern that can be exploited.
B
When Maurice Kendall first examined stock price patterns in 1953, he found that: 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. E)the direction of change in stock prices was unpredictable, but the amount of change followed a distinct pattern.
B
Your professor finds a stock-trading rule that generates excess risk-adjusted returns. Instead of publishing the results, she keeps the trading rule to herself. This is most closely associated with: A)regret avoidance. B)selection bias. C)framing. D)insider trading.
B
_________ above which it is difficult for the market to rise. A)A book value is a value B)A resistance level is a value C)A support level is a value D)A book value and a resistance level are values E)A book value and a support level are values
B
____________ may be responsible for the prevalence of active versus passive investments management. A)Forecasting errors B)Overconfidence C)Mental accounting D)Conservatism E)Regret avoidance
B
A support level is the price range at which a technical analyst would expect the A)supply of a stock to increase dramatically. B)supply of a stock to decrease substantially. C)demand for a stock to increase substantially. D)demand for a stock to decrease substantially. E)price of a stock to fall.
C
Banz (1981) found that, on average, the risk-adjusted returns of large firms A)were higher than the risk-adjusted returns of small firms. B)were the same as the risk-adjusted returns of small firms. C)were lower than the risk-adjusted returns of small firms. D)were unrelated to the risk-adjusted returns of small firms. E)were negative.
C
Basu (1977, 1983) found that firms with high P/E ratios 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 ratios.
C
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. A)semistrong B)strong C)weak D)All of the options are correct. E)None of the options are correct.
C
If you believe in the reversal effect, you should: A) sell bonds in this period if you held stocks in the last period. B) sell stocks in this period if you held bonds in the last period. C) sell stocks this period that performed well last period. D) go long. E) sell stocks this period that performed well last period and go long.
C
If you believe in the reversal effect, you should: A)buy bonds in this period if you held stocks in the last period. B)buy stocks in this period if you held bonds in the last period. C)buy stocks this period that performed poorly last period. D)go short. E)buy stocks this period that performed poorly last period and go short.
C
In an efficient market the correlation coefficient between stock returns for two nonoverlapping time periods should be: A)positive and large. B)positive and small. C)zero. D)negative and small. E)negative and large.
C
Jaffe (1974) found that stock prices _________ after insiders intensively bought shares. A)decreased B)did not change C)increased D)became extremely volatile E)became much less volatile
C
Markets would be inefficient if irrational investors __________ and actions of arbitragers were __________. A)existed; unlimited B)did not exist; unlimited C)existed; limited D)did not exist; limited
C
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: 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. E)earnings are expected to decrease next quarter.
C
Nicholas Manufacturing just announced yesterday that its fourth quarter earnings will be 10% higher than last year's fourth quarter. Nicholas had an abnormal return of −1.2% yesterday. This suggests that: A)the market is not efficient. B)Nicholas' stock will probably rise in value tomorrow. C)investors expected the earnings increase to be larger than what was actually announced. D)investors expected the earnings increase to be smaller than what was actually announced. E)earnings are expected to decrease next quarter.
C
Proponents of the EMH typically advocate: A)buying individual stocks on margin and trading frequently. B)investing in hedge funds. C)a passive investment strategy. D)buying individual stocks on margin, trading frequently, and investing in hedge funds. E)investing in hedge funds and a passive investment strategy.
C
Single men trade far more often than women. This is due to greater ________ among men. A)framing B)regret avoidance C)overconfidence D)conservatism
C
The anomalies literature: A) provides a conclusive rejection of market efficiency. B) provides conclusive support of market efficiency. C) suggests that several strategies would have provided superior returns. D) provides a conclusive rejection of market efficiency and suggests that several strategies would have provided superior returns. E) None of the options are correct.
C
The likelihood of an investment newsletter's successfully predicting the direction of the market for three consecutive years by chance should be A)between 50% and 70%. B)between 25% and 50%. C)between 10% and 25%. D)less than 10%. E)greater than 70%.
C
Two basic assumptions of technical analysis are that security prices adjust A) rapidly to new information, and market prices are determined by the interaction of supply and demand. B)rapidly to new information, and liquidity is provided by security dealers. C)gradually to new information, and market prices are determined by the interaction of supply and demand. D)gradually to new information, and liquidity is provided by security dealers. E)rapidly to information and to the actions of insiders.
C
What factor of fundamental analysis has been found to have a negative impact on returns over a 3-12 month time horizon? A)intrinsic value B)inflation C)volatility D)discount rates
C
Which of the following are investment superstars who have consistently shown superior performance? I) Warren Buffet II) Phoebe Buffet III) Peter Lynch IV) Merrill Lynch V) Jimmy Buffet A) I, III, and IV B) II, III, and IV C) I and III D) III and IV E) I, III, IV, and V
C
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: A) I, IV, and V B) I, II, and III C) II, III, and IV D) II, IV, and V E) All of the items are used by fundamental analysts.
C
XRCO has a beta of 1.7. The annualized market return yesterday was 13%, and the risk-free rate is currently 3%. You observe that XRCO had an annualized return yesterday of 20%. Assuming that markets are efficient, this suggests that: A)bad news about XRCO was announced yesterday. B)good news about XRCO was announced yesterday. C)no significant news about XRCO was announced yesterday. D)interest rates rose yesterday. E)interest rates fell yesterday.
C
XRCO just announced yesterday that its fourth quarter earnings will be 35% higher than last year's fourth quarter. You observe that XRCO had an abnormal return of −1.7% yesterday. This suggests that: A)the market is not efficient. B)XRCO stock will probably rise in value tomorrow. C)investors expected the earnings increase to be larger than what was actually announced. D)investors expected the earnings increase to be smaller than what was actually announced. E)earnings are expected to decrease next quarter.
C
_________ below which it is difficult for the market to fall. 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 E)A resistance level and a support level are values
C
___________ the return on a stock beyond what would be predicted from market movements alone. A)An irrational return is B)An economic return is C)An abnormal return is D)None of the options are correct. E)All of the options are correct.
C
____________ are good examples of the limits to arbitrage because they show that the law of one price is violated. I) Siamese twin companies II) Unit trusts III) Closed-end funds IV) Open-end funds V) Equity carve-outs A)I and II B)I, II, and III C)I, III, and V D)IV and V E)V
C
____________ is a measure of the extent to which a movement in the market index is reflected in the price movements of all stocks in the market. A)Put-call ratio B)Trin ratio C)Breadth D)Confidence index E)All of the options are correct.
C
A hybrid strategy is one where the investor: A)uses both fundamental and technical analysis to select stocks. B)selects the stocks of companies that specialize in alternative fuels. C)selects some actively-managed mutual funds on their own and uses an investment advisor to select other actively-managed funds. D)maintains a passive core and augments the position with an actively-managed portfolio.
D
A market decline of 23% on a day when there is no significant macroeconomic event ______ consistent with the EMH because ________. 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
D
At freshman orientation, 1,500 students are asked to flip a coin 20 times. One student is crowned the winner (tossed 20 heads). This is most closely associated with: A) regret avoidance. B) selection bias. C) overconfidence. D) the lucky event issue.
D
Behavioral finance argues that: A)even if security prices are wrong, it may be difficult to exploit them. B)the failure to uncover successful trading rules or traders cannot be taken as proof of market efficiency. C)investors are rational. D)even if security prices are wrong, it may be difficult to exploit them and the failure to uncover successful trading rules or traders cannot be taken as proof of market efficiency. E)All of the options are correct.
D
Cumulative abnormal returns (CAR) A) are used in event studies. B) are better measures of security returns due to firm-specific events than are abnormal returns (AR). C) are cumulated over the period prior to the firm-specific event. D) are used in event studies and are better measures of security returns due to firm-specific events than are abnormal returns (AR). E) are used in event studies and are cumulated over the period prior to the firm-specific event.
D
Del Guerico and Reuter (2014) report that the average underperformance of actively-managed mutual funds is driven largely by: A)sector mutual funds. B)index funds. C)direct-sold funds. D)broker-sold funds. E)bank-sold mutual funds.
D
If stock prices follow a random walk,: A)it implies that investors are irrational. B)it means that the market cannot be efficient. C)price levels are not random. D)price changes are random. E)price movements are predictable.
D
KWM Corporation just announced yesterday that it would undertake an international joint venture. You observe that KWM had an abnormal return of 3% yesterday. This suggests that: A)the market is not efficient. B)KWM 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. E)earnings are expected to decrease next quarter.
D
Some economists believe that the anomalies literature is consistent with investors': A)ability to always process information correctly, and therefore, they infer correct probability distributions about future rates of return;andgiven a probability distribution of returns, they always make consistent and optimal decisions. B)inability to always process information correctly, and therefore, they infer incorrect probability distributions about future rates of return;andgiven a probability distribution of returns, they always make consistent and optimal decisions. C)ability to always process information correctly, and therefore, they infer correct probability distributions about future rates of return;andgiven a probability distribution of returns, they often make inconsistent or suboptimal decisions. D)inability to always process information correctly, and therefore, they infer incorrect probability distributions about future rates of return;andgiven a probability distribution of returns, they often make inconsistent or suboptimal decisions.
D
Studies of mutual-fund performance A)indicate that one should not randomly select a mutual fund. B)indicate that historical performance is not necessarily indicative of future performance. C)indicate that the professional management of the fund insures above market returns. D)indicate that one should not randomly select a mutual fund and indicate that historical performance is not necessarily indicative of future performance. E)indicate that historical performance is not necessarily indicative of future performance and indicate that the professional management of the fund insures above market returns.
D
Studies of positive earnings surprises have shown that there is A) a positive abnormal return on the day positive earnings surprises are announced. B) a positive drift in the stock price on the days following the earnings surprise announcement. C) a negative drift in the stock price on the days following the earnings surprise announcement. D) a positive abnormal return on the day positive earnings surprises are announced and a positive drift in the stock price on the days following the earnings surprise announcement. E) a positive abnormal return on the day positive earnings surprises are announced and a negative drift in the stock price on the days following the earnings surprise announcement.
D
Suppose on August 27, there were 1,455 stocks that advanced on the NASDAQ and 1,553 that declined. The volume in advancing issues was 852,581, and the volume in declining issues was 1,058,312. The trin ratio for that day was ________, and technical analysts were likely to be ________. A)0.87; bullish B)0.87; bearish C)1.16; bullish D)1.16; bearish
D
Tests of market efficiency have focused on: A)the mean-variance efficiency of the selected market proxy. B)strategies thatwouldhave provided superior risk-adjusted returns. C)results ofactualinvestments of professional managers. D)strategies that would have provided superior risk-adjusted returns and results of actual investments of professional managers. E)the mean-variance efficiency of the selected market proxy and strategies thatwouldhave provided superior risk-adjusted returns.
D
The Food and Drug Administration (FDA) just announced yesterday that they would approve a new cancer-fighting drug from Queen. You observe that Queen had an abnormal return of 0% yesterday. This suggests that: A)the market is not efficient. B)Queen stock will probably rise in value tomorrow. C)Queen stock will probably fall in value tomorrow. D)the approval was already anticipated by the market.
D
The debate over whether markets are efficient will probably never be resolved because of A)the lucky event issue. B)the magnitude issue. C)the selection bias issue. D)All of the options are correct. E)None of the options are correct.
D
The difference between a random walk and a submartingale is the expected price change in a random walk is ______, and the expected price change for a submartingale is ______. A)positive; zeroB)positive; positiveC)positive; negativeD)zero; positiveE)zero; zero
D
The main difference between the three forms of market efficiency is that: 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. E)they were discovered by different people.
D
The weak form of the efficient-market hypothesis contradicts A)technical analysis but supports fundamental analysis as valid. B)fundamental analysis but supports technical analysis as valid. C)both fundamental analysis and technical analysis. D)technical analysis but is silent on the possibility of successful fundamental analysis.
D
What phrase actually measures the positive result of market inefficiency? A)CAMP B)beta C)volatility D)alpha
D
________ bias means that investors are too slow in updating their beliefs in response to evidence. A)Framing B)Regret avoidance C)Overconfidence D)Conservatism E)None of the options are correct.
D
__________ focus more on past price movements of a firm's stock than on the underlying determinants of future profitability. A)Credit analysts B)Fundamental analysts C)Systems analysts D)Technical analysts
D
A finding that _________ would provide evidence against the semistrong form of the efficient-market theory. A)low P/E stocks tend to have positive abnormal returns B)trend analysis is worthless in determining stock prices C)one can consistently outperform the market by adopting the contrarian approach exemplified by the reversals phenomenon D)low P/E stocks tend to have positive abnormal returns and trend analysis is worthless in determining stock prices E)low P/E stocks tend to have positive abnormal returns and one can consistently outperform the market by adopting the contrarian approach exemplified by the reversals phenomenon
E
According to proponents of the efficient-market hypothesis, the best strategy for a small investor with a portfolio worth $40,000 is probably to: A)perform fundamental analysis. B)exploit market anomalies. C)invest in Treasury securities. D)invest in derivative securities. E)invest in mutual funds.
E
If a person gives too much weight to recent information compared to prior beliefs, they would make ________ errors. A) framing B) selection bias C) overconfidence D) conservatism E) forecasting
E
In an efficient market, A)security prices react quickly to new information. B)security prices are seldom far above or below their justified levels. C)security analysis will not enable investors to realize superior returns consistently. D)one cannot make money. E)security prices react quickly to new information, security prices are seldom far above or below their justified levels, and security analysis will not enable investors to realize superior returns consistently.
E
Information processing errors consist of I) forecasting errors. II) overconfidence. III) conservatism. IV) framing. A)I and II B)I and III C)III and IV D)IV only E)I, II, and III
E
Proponents of the EMH think technical analysts: A)should focus on relative strength. B)should focus on resistance levels. C)should focus on support levels. D)should focus on financial statements. E)are wasting their time.
E
Proponents of the EMH typically advocate: A)an active trading strategy. B)investing in an index fund. C)a passive investment strategy. D)an active trading strategy and investing in an index fund. E)investing in an index fund and a passive investment strategy.
E
Sehun (1986) finds that the practice of monitoring insider trade disclosures, and trading on that information, would be: A)extremely profitable for long-term traders. B)extremely profitable for short-term traders. C)marginally profitable for long-term traders. D)marginally profitable for short-term traders. E)not sufficiently profitable to cover trading costs.
E
Studies of negative earnings surprises have shown that there is A) a negative abnormal return on the day that negative earnings surprises are announced. B) a positive drift in the stock price on the days following the earnings surprise announcement. C) a negative drift in the stock price on the days following the earnings surprise announcement. D) a negative abnormal return on the day that negative earnings surprises are announced and a positive drift in the stock price on the days following the earnings surprise announcement. E) a negative abnormal return on the day that negative earnings surprises are announced and a negative drift in the stock price on the days following the earnings surprise announcement.
E
The confidence index is computed from ____________, and higher values are considered ____________ signals. A)bond yields; bearish B)odd lot trades; bearish C)odd lot trades; bullish D)put/call ratios; bullish E)bond yields; bullish
E
The efficient-market hypothesis A)implies that security prices properly reflect information available to investors B)has little empirical validity. C)implies that active traders will find it difficult to outperform a buy-and-hold strategy. D)has little empirical validity and implies that active traders will find it difficult to outperform a buy-and-hold strategy. E)implies that security prices properly reflect information available to investors and that active traders will find it difficult to outperform a buy-and-hold strategy.
E
The weak form of the efficient-market hypothesis asserts that A)stock prices do not rapidly adjust to new information contained in past prices or past data. B)future changes in stock prices cannot be predicted from past prices. C)technicians cannot expect to outperform the market. D)stock prices do not rapidly adjust to new information contained in past prices or past data, and future changes in stock prices cannot be predicted from past prices. E)future changes in stock prices cannot be predicted from past prices, and technicians cannot expect to outperform the market.
E
Work by Amihud and Mendelson (1986, 1991) A)argues that investors will demand a rate of return premium to invest in less liquid stocks. B)may help explain the small firm effect. C)may be related to the neglected firm effect. D)may help explain the small firm effect and may be related to the neglected firm effect. E)All of the options are correct.
E
