Reading 48: Market Efficiency

Fundamental analysts assume that markets are:

semi-strong form inefficient.

If prices reflect all public and private information, the market is best described as:

strong-form efficient.

If a market is weak-form efficient but semi-strong inefficient, then which of the following types of portfolio management is most likely to produce abnormal returns?

Active portfolio management based on fundamental analysis.

Which of the following market anomalies is inconsistent with weak-form market efficiency?

Momentum pattern.

Which of the following is least likely to explain the January effect?

Release of new information in January.

Which of the following market regulations will most likely impede market efficiency?

Restricting traders ability to short sell.

Which of the following statements best describes the semi-strong form of market efficiency?

Security prices reflect all publicly known and available information.

If a researcher conducting empirical tests of a trading strategy using time series of returns finds statistically significant abnormal returns, the the researcher has most likely found:

a market anomaly.

Like traditional finance models, the behavioral theory of loss aversion assumes that investors dislike risk; however, the dislike of risk in behavioral theory is assumed to be:

asymmetrical.

An increase in the time between when an order to trade a security is placed and when the order is executed most likely indicates that market efficiency has:

decreased.

Researchers have found that value stocks have consistently outperformed growth stocks. An investor wishing to exploit the value effect should purchase the stock of companies with above-average:

dividend yields.

If markets are semi-strong efficient, standard fundamental analysis will yield abnormal profits that are:

equal to zero.

The intrinsic value of an undervalued asset is:

greater than the asset's market value.

If a market is semi-strong-form efficient, the risk adjusted returns are passively managed portfolio relative to an actively managed portfolio are most likely:

higher.

Regulation that restricts some investors from participating in a market will most likely:

impede market efficiency.

With respect to efficient market theory, when a market allows short selling, the efficient of the market is most likely to:

increase.

Which of the following regulations will most likely contribute to market efficiency? Regulatory restrictions: on:

insiders trading with nonpublic information.

Observed overreactions in markets can be explained by an investor's degree of:

loss aversion.

In an efficient market, the change in a company's share price is most likely the result of:

new information coming into the market.

With respect to rational and irrational investment decisions, the efficient market hypothesis requires:

only that the market is rational.

If markets are semi-strong efficient, then passive portfolio management strategies are most likely to:

outperform active trading strategies.

With respect to efficient markets, a company whose share price reacts gradually to the public release of its annual report most likely indicates that market where the company trades is

receiving additional information about the company.

The market value of an undervalued asset is:

the value at which the asset can be currently bought or sold.

With respect to the efficient market hypothesis, if security prices reflect only past prices and trading volume information, then the market is:

weak-form efficient.

Technical analysts assume that markets are:

weak-form inefficient.

If markets are efficient, the difference between the intrinsic value and market value of a company's security is:

zero.