Day 8 pt 1

Which of the following would provide evidence against the semistrong form of the efficient market theory?A) All investors have learned to exploit signals related to future performance.B) Low P/E stocks tend to have positive abnormal returns over the long run.C) Trend analysis is worthless in determining stock prices.

B) Low P/E stocks tend to have positive abnormal returns over the long run.

The strong-form efficient market hypothesis (EMH) asserts that stock prices fully reflect which of the following types of information?A) Market.B) Public and private.C) Public, private, and future.

B) Public and private.

In behavioral finance theory, loss aversion is most accurately defined as asserting that for gains and losses of equal amounts, investors:A) like gains more than they dislike losses.B) dislike losses more than they like gains.C) dislike for losses and like for gains are proportionate.

B) dislike losses more than they like gains.

The weak form of the efficient market hypothesis (EMH) implies that:A) insiders, such as specialists and corporate board members, cannot achieve abnormal returns on average.B) investors cannot achieve abnormal returns, on average, using technical analysis, after adjusting for transaction costs and taxes.C) no one can achieve abnormal returns using market information.

B) investors cannot achieve abnormal returns, on average, using technical analysis, after adjusting for transaction costs and taxes.

David Farrington is an analyst at Farrington Capital Management. He is aware that many people believe that the capital markets are fully efficient. However, he is not convinced and would like to disprove this claim. Which of the following statements would support Farrington in his effort to demonstrate the limitations to fully efficient markets?A) Processing new information entails costs and takes at least some time, so security prices are not always immediately affected.B) Stock prices adjust to their new efficient levels within hours of the release of new information.C) Technical analysis has been rendered useless by many academics who have shown that analyzing market trends, past volume and trading data will not lead to abnormal returns.

A) Processing new information entails costs and takes at least some time, so security prices are not always immediately affected.

Which of the following forms of the EMH assumes that no group of investors has monopolistic access to relevant information?A) Strong-form.B) Both weak and semistrong form.C) Weak-form.

A) Strong-form.

The semi-strong form of efficient market hypothesis (EMH) asserts that:A) all public information is already reflected in security prices.B) both public and private information is already incorporated into security prices.C) only past market information is reflected in security prices.

A) all public information is already reflected in security prices.

Which of the following statements about the efficient market hypothesis (EMH) is most accurate? A) The weak form of the EMH maintains that current security prices fully reflect all past information.B) The semistrong form of the EMH states that current security prices fully reflect all public and nonpublic information, both market and nonmarket.C) The strong form of the EMH implies that no group of investors should be able to consistently achieve positive abnormal returns.

C) The strong form of the EMH implies that no group of investors should be able to consistently achieve positive abnormal returns.

Tom Edwin, CFA, states, "Individuals exhibit biases, such as loss aversion and herding, that result in observed pricing anomalies in financial markets. However, a strategy based on exploiting these anomalies will not earn positive abnormal returns over time." With regard to the efficient markets and behavioral finance views of market pricing, Edwin's statement is most likely consistent with:A) behavioral nance, but not informationally efficient markets.B) neither behavioral nance nor informationally efficient markets. C) both behavioral nance and informationally efficient markets.

C) both behavioral nance and informationally efficient markets.

Which of the following statements least likely describes the role of a portfolio manager in perfectly efficient markets? Portfolio managers should:A) construct a portfolio that includes financial and real assets.B) construct diversified portfolios that include international securities to eliminate unsystematic risk.C) quantify client's risk tolerance, communicate portfolio policies and strategies, and maintain a strict buy and hold policy avoiding any changes in the portfolio to minimize transaction costs.

C) quantify client's risk tolerance, communicate portfolio policies and strategies, and maintain a strict buy and hold policy avoiding any changes in the portfolio to minimize transaction costs.

An efficient capital market:A) does not fully reflect all of the information currently available about a given security, including risk.B) fully reflects all of the information currently available about a given security, excluding risk.C)fully reflects all of the information currently available about a given security, including risk

C)fully reflects all of the information currently available about a given security, including risk.