Investments Quiz 6

In a 1988 study, Fama and French found that the return on the aggregate stock market was __________ when the dividend yield was higher. higher more skewed unaffected lower

higher

A mutual fund that attempts to hold quantities of shares in proportion to their representation in the market is called an __________ fund. money market index stock hedge

index

One type of passive portfolio management is __________. investing in a well-diversified portfolio without attempting to search out mispriced securities investing an equal dollar amount in index stocks investing in an equal amount of shares in each of the index stocks investing in a well-diversified portfolio while only seeking out passively mispriced securities

investing in a well-diversified portfolio without attempting to search out mispriced securities

A moving average of stock prices __________. is more volatile than the actual prices is less volatile than the actual prices always lies above the most recent price always lies below the most recent price

is less volatile than the actual prices

When technical analysts say a stock has good "relative strength," they mean that in the recent past __________. it has outperformed the market index it has exceeded its own historical high it has performed well compared to its closest competitors trading volume in the stock has exceeded the normal trading volume

it has outperformed the market index

A major problem with technical trading strategies is that __________. Kondratieff showed that you can't identify trends without 48 to 60 years of data it is very difficult to identify a true trend before the fact it is so easy to identify trends that all investors quickly do so it is very difficult to identify the correct trend after the fact

it is very difficult to identify a true trend before the fact

If the utility you derive from your next dollar of wealth increases by less than a loss of a dollar reduces it, you are exhibiting __________. framing bias loss aversion regret avoidance mental accounting

loss aversion

The most common measure of __________ is the spread between the number of stocks that advance in price and the number of stocks that decline in price. odd-lot trading short interest market volume market breadth

market breadth

The four-factor model used to construct performance benchmarks for mutual funds uses the three Fama and French factors and one additional factor related to _________. the tenure of the fund manager fees the age of the fund manager momentum

momentum

The tendency of poorly performing stocks and well-performing stocks in one period to continue their performance into the next period is called the __________. momentum effect martingale effect reversal effect fad effect

momentum effect

An implication of the efficient market hypothesis is that __________. high-beta stocks are consistently overpriced growth stocks are better buys than value stocks nonzero alphas will quickly disappear low-beta stocks are consistently overpriced

nonzero alphas will quickly disappear

Market anomaly refers to __________. price behavior that differs from the behavior predicted by the efficient market hypothesis a price or volume event that is inconsistent with historical price or volume trends a trading or pricing structure that interferes with efficient buying and selling of securities an exogenous shock to the market that is sharp but not persistent

price behavior that differs from the behavior predicted by the efficient market hypothesis

If investors overweight recent performance in forecasting the future, they are exhibiting __________. framing error memory bias representativeness bias overconfidence

representativeness bias

An important assumption underlying the use of technical analysis techniques is that __________. security prices adjust rapidly to new information all investors have immediate and costless access to information security prices adjust gradually to new information security dealers will provide enough liquidity to keep price changes relatively small

security prices adjust gradually to new information

Evidence suggests that there may be __________ momentum and __________ reversal patterns in stock price behavior. short-run; long-run long-run; short-run short-run; short-run long-run; long-run

short-run; long-run

The term random walk is used in investments to refer to __________. stock prices that respond slowly to both old and new information stock prices changes that follow the pattern of past price changes stock price changes that are random and unpredictable stock price changes that are random but predictable

stock price changes that are random and unpredictable

Choosing stocks by searching for predictable patterns in stock prices is called _________. index management technical analysis random walk investing fundamental analysis

technical analysis

Random price movements indicate __________. that markets are functioning efficiently that technical analysis to uncover trends can be quite useful irrational markets that prices cannot equal fundamental values

that markets are functioning efficiently

Behavioral patterns persist in prices if __________. markets are weak-form efficient there are limits to arbitrage activity there are no significant trading costs market psychology is inconsistent over time

there are limits to arbitrage activity

In a 1953 study of stock prices, Maurice Kendall found that __________. stock prices exhibited strong serial autocorrelation day-to-day stock prices followed consistent trends fundamental analysis could be used to generate abnormal returns there were no predictable patterns in stock prices

there were no predictable patterns in stock prices

Evidence supporting semistrong-form market efficiency suggests that investors should __________. rely on a combination of technical and fundamental analysis to select securities rely on fundamental analysis to select securities rely on technical analysis to select securities use a passive trading strategy such as purchasing an index fund or an ETF

use a passive trading strategy such as purchasing an index fund or an ETF

Fama and French have suggested that many market anomalies can be explained as manifestations of __________. information asymmetry varying risk premiums regulatory effects high trading costs

varying risk premiums

Among the important characteristics of market efficiency is (are) that: 1. There are no arbitrage opportunities. 2. Security prices react quickly to new information. 3. Active trading strategies will not consistently outperform passive strategies. 1, 2, and 3 2 only 1 and 3 only 1 only

1, 2, and 3

McLean and Pontiff (2016) identify more than __________ characteristics associated with abnormal returns. 25 95 10 1,000

95

__________ is the return on a stock beyond what would be predicted from market movements alone. A subliminal return An excess return An abnormal return A normal return

An abnormal return

Which of the following is not a method employed by followers of technical analysis? Charting Earnings forecasting Relative strength analysis Trading around support and resistance levels

Earnings forecasting

According to Markowitz and other proponents of modern portfolio theory, which of the following activities would not be expected to produce any benefits? Investing in stocks of utility companies Diversifying Investing in treasury bills Engaging in active portfolio management to enhance returns

Engaging in active portfolio management to enhance returns

Which of the following beliefs would not preclude charting as a method of portfolio management? Stock prices follow recurring patterns. The market is strong-form efficient. The market is weak-form efficient. The market is semistrong-form efficient.

Stock prices follow recurring patterns.

A day trade with an average stock holding period of under 8 minutes might be most closely associated with which trading philosophy? Technical analysis EMH Fundamental analysis Strong-form market efficiency

Technical analysis

Proponents of the EMH typically advocate __________. a passive investment strategy an aggressive investment strategy a conservative investment strategy a liberal investment strategy

a passive investment strategy

The strong form of the EMH states that __________ must be reflected in the current stock price. all security price and volume data all costless information all information, including inside information all publicly available information

all information, including inside information

The weak-form of the EMH states that __________ must be reflected in the current stock price. all information, including inside information all publicly available information all past information, including security price and volume data all costless information

all past information, including security price and volume data

The semistrong-form of the EMH states that __________ must be reflected in the current stock price. all security price and volume data all publicly available information all costless information all information, including inside information

all publicly available information

Assume that a company announces unexpectedly high earnings in a particular quarter. In an efficient market one might expect __________. an abnormal price increase before the announcement an abnormal price decrease after the announcement an abnormal price change immediately after the announcement no abnormal price change before or after the announcement

an abnormal price change immediately after the announcement

A TRIN ratio of greater than 1 is considered a __________. bearish signal by some technical analysts and a bullish signal by other technical analysts bearish signal trend reversal signal bullish signal

bearish signal

Models of financial markets that emphasize psychological factors affecting investor behavior are called __________. data mining behavioral finance fundamental analysis charting

behavioral finance

When the market breaks through the moving average line from below, a technical analyst would probably suggest that it is a good time to __________. short the stock hold the stock buy the stock sell the stock

buy the stock

The ratio of the average yield on 10 top-rated corporate bonds to the average yield on 10 intermediate-grade bonds is called the __________. relative strength index TRIN ratio confidence index bond price index

confidence index

If investors are too slow to update their beliefs about a stock's future performance when new evidence arises, they are exhibiting __________. representativeness bias framing error conservatism memory bias

conservatism

Technical analysis focuses on __________. changing prospects for earnings growth of particular firms or industries finding opportunities for risk-free investing forecasting technical regulatory changes finding repeating trends and patterns in prices

finding repeating trends and patterns in prices