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The return earned in an average year over a multiyear period is called the

Arithmetic

Efficient Market Hypothesis V2

Beating the market is impossible, because stocks are accurately priced and reflect all information. So only way to make a profit (higher returns than an index) is by buying high risk investments.

Risk return trade off

greater risk, greater potential award

Risk premium

return over and above the risk free rate

efficient market reaction

the price of the stock instantaneously adjusts to and fully reflects new info

Efficient capital markets

Any market in which securities are traded where new information is incorporated into prices very quickly. Like competitive market

overly optimistic for long horizons

Arithmetic average, 15 - 20 years or less: use the arithmetic

What was the average rate of inflation over the period of 1926-2013?

Between 2.8 and 3.2 percent

If the variability of the returns on large-company stocks were to decrease over the long-term, you would expect which one of the following to occur as a result?

Decrease in the 68 percent probability range of returns

Generally speaking, which of the following most correspond to a wide frequency distribution?

High standard deviation, large risk premium

Evidence seems to support the view that studying public information to identify mispriced stocks is:

Ineffective .

The normal distribution is a symmetric, bell-shaped frequency distribution

It is completely defined by its mean and standard deviation

Which one of the following statements related to market efficiency tends to be supported by current evidence?

Markets tend to respond quickly to new information.

Which one of the following is defined by its mean and its standard deviation?

Normal distribution

Which one of the following categories of securities had the highest average return for the period 1926-2013?

Small company stocks

The historical record for the period 1926-2013 supports which one of the following statements?

Small-company stocks have lost as much as 50 percent and gained as much as 100 percent in a single year.

Efficient Market Hypothesis

States that all relevant information is fully and immediately reflected in a security's market price, thereby assuming that an investor will obtain an equilibrium rate of return. In other words, an investor should not expect to earn an abnormal return (above the market return)

Which one of the following statements concerning U.S. Treasury bills is correct for the period 1926- 2013?

The annual rate of return was always positive.

Which form of market efficiency would most likely offer the greatest profit potential to an outstanding professional stock analyst?

Weak

Geometric average

average compound return per period over multiple periods

overly pessimistic for short horizons

geometric average , 40 + years: use the geometric

overreaction

price over adjusts to new info

delayed reaction

price partially adjusts to new info

Arithmetic average

return earned in an average period over multiple periods

Treasury bills are considered

risk free

The greater the volatility

the greater the uncertainty

Variance and standard deviation measure

the volatility of asset returns

you can make money for any reaction

true, just need to buy low sell high, timing is important