Chapter 14 | Efficient Captial Markets and Behavioral Challenges

If you can beat the market by __________, then you are violating weak form efficiency.

Analyzing historical price patterns

A real-world example that does not support market efficiency is called a(n) ______.

Anomaly

Efficient markets theory implies that company buyouts based on the belief that the target company is underpriced are ______ bets.

Bad

A new music player comes out that is far superior to any other format, but you keep on buying music in the same old format. This would be an example of the psychological trait of ______.

Conservatism

True or false: Throwing darts at the financial pages to construct a portfolio is not be a good strategy because professional security analysts always outperform dart portfolios.

False

If new, negative information reaches the market and stock prices slowly decrease, the market has reacted ___.

Inefficiently

An efficient market is one that fully reflects all available ___.

Information

Which of the following summarize the behavioral arguments against efficient markets? Inside information is just too pervasive to ignore. Irrationality may not cancel out across investors. Arbitrage strategies may be too risky. Investors may not be rational.

Irrationality may not cancel out across investors. Arbitrage strategies may be too risky. Investors may not be rational.

If managers who want to issue equity believe the company's stock is overpriced, they are likely to __________.

Issue equity immediately

According to the efficient markets hypothesis, the timing of a new equity issue is __________ important.

Not

What types of information affect the rates at which stock prices adjust to new information?

Past Information Publicly Available Information All Information

The investor trait of ______ occurs when investors draw conclusions from insufficient data.

Representativeness

If you beat the market with inside information, you have violated the concept of __________ form efficiency.

Strong

Beating the market __________ would illustrate a violation of semistrong form efficiency.

by analyzing financial statements

Weak form efficiency

considers trading strategies that use information based solely on past stock prices

In an efficient market, firms should expect to receive __________ value for securities they sell.

fair

If company managers believe interest rates will rise, they have a(n) ___________ to borrow long term.

incentive

It is not uncommon for IPOs to __________ experience large gains.

initially

The behavioral view holds that __________ investors are irrational.

some