FIN 3302 C8

According to the semistrong form of the efficient markets hypothesis, ____________. A. stock prices do not rapidly adjust to new information B. future changes in stock prices cannot be predicted from any information that is publicly available C. corporate insiders should have no better investment performance than other investors even if allowed to trade freely D. arbitrage between futures and cash markets should not produce extraordinary profits

B

Most people would readily agree that the stock market is not _________. A. weak-form efficient B. semistrong-form efficient C. strong-form efficient D. efficient at all

C

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

C

A technical analyst is most likely to be affiliated with which investment philosophy? A. Active management B. Buy and hold C. Passive investment D. Index funds

A

Most evidence indicates that U.S. stock markets are _______________________. A. reasonably weak-form and semistrong-form efficient B. strong-form efficient C. reasonably weak-form but not semistrong- or strong-form efficient D. neither weak-, semistrong-, nor strong-form efficient

A

If the U.S. capital markets are not informationally efficient, ______. A. the markets cannot be allocationally efficient B. systematic risk does not matter C. no type of analysis can be used to generate abnormal returns D. returns must follow a random walk

A

If you believe in the __________ form of the EMH, you believe that stock prices reflect all publicly available information but not information that is available only to insiders. A. semistrong B. strong C. weak D. perfect

A

Choosing stocks by searching for predictable patterns in stock prices is called ________. A. fundamental analysis B. technical analysis C. index management D. random-walk investing

B

Even if the markets are efficient, professional portfolio management is still important because it provides investors with:I. Low-cost diversificationII. A portfolio with a specified risk levelIII. Better risk-adjusted returns than an index A. I only B. I and II only C. II and III only D. I, II, and III

B

If you believe in the __________ form of the EMH, you believe that stock prices reflect all relevant information, including information that is available only to insiders. A. semistrong B. strong C. weak D. perfect

B

In an efficient market and for an investor who believes in a passive approach to investing, what is the primary duty of a portfolio manager? A. Accounting for results B. Diversification C. Identifying undervalued stocks D. No need for a portfolio manager

B

Joe bought a stock at $57 per share. The price promptly fell to $55. Joe held on to the stock until it again reached $57, and then he sold it once he had eliminated his loss. If other investors do the same to establish a trading pattern, this would contradict _______. A. the strong-form EMH B. the weak-form EMH C. technical analysis D. the semistrong-form EMH

B

Stock market analysts have tended to be ___________ in their recommendations to investors. A. slightly overly optimistic B. overwhelmingly optimistic C. slightly overly pessimistic D. overwhelmingly pessimistic

B

Stock prices that are stable over time _______. A. indicate that prices are useful indicators of true economic value B. indicate that the market is not incorporating new information into current stock prices C. ensure that an economy allocates its resources efficiently D. indicates that returns follow a random-walk process

B

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

B

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

C

Insiders are able to profitably trade and earn abnormal returns prior to the announcement of positive news. This is a violation of which form of efficiency? A. Weak-form efficiency B. Semistrong-form efficiency C. Strong-form efficiency D. Technical analysis

C

The broadest information set is included in the _____. A. weak-form efficiency argument B. semistrong-form efficiency argument C. strong-form efficiency argument D. technical analysis trading method

C

The primary objective of fundamental analysis is to identify __________. A. well-run firms B. poorly run firms C. mispriced stocks D. high P/E stocks

C

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

C

Which of the following stock price observations would appear to contradict the weak form of the efficient market hypothesis? A. The average rate of return is significantly greater than zero. B. The correlation between the market return one week and the return the following week is zero. C. You could have consistently made superior returns by buying stock after a 10% rise in price and selling after a 10% fall. D. You could have consistently made superior returns by forecasting future earnings performance with your new Crystal Ball forecast methodology.

C

"Buy a stock if its price moves up by 2% more than the Dow Average" is an example of a _________________. A. trading rule B. market anomaly C. fundamental approach D. passive trading strategy

A

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

A

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

A

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

B

When the market risk premium rises, stock prices will ________. A. rise B. fall C. recover D. have excess volatility

B

Which of the following is not a method employed by fundamental analysts? A. Analyzing the Fed's next interest rate move B. Relative strength analysis C. Earnings forecasting D. Estimating the economic growth rate

B

Evidence supporting semistrong-form market efficiency suggests that investors should _________________________. A. rely on technical analysis to select securities B. rely on fundamental analysis to select securities C. use a passive trading strategy such as purchasing an index fund or an ETF D. select securities by throwing darts at the financial pages of the newspaper

C

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

C

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

C

Which of the following contradicts the proposition that the stock market is weakly efficient? A. Over 25% of mutual funds outperform the market on average. B. Insiders earn abnormal trading profits. C. Every January, the stock market earns above-normal returns. D. Applications of technical trading rules fail to earn abnormal returns.

C

Which of the following would violate the efficient market hypothesis? A. Intel has consistently generated large profits for years. B. Prices for stocks before stock splits show, on average, consistently positive abnormal returns. C. Investors earn abnormal returns months after a firm announces surprise earnings. D. High-earnings growth stocks fail to generate higher returns for investors than do low earnings growth stocks.

C

You believe that stock prices reflect all information that can be derived by examining market trading data such as the history of past stock prices, trading volume, or short interest, but you do not believe stock prices reflect all publicly available and inside information. You are a proponent of the ____________ form of the EMH. A. semistrong B. strong C. weak D. perfect

C

__________ is the return on a stock beyond what would be predicted from market movements alone. A. A normal return B. A subliminal return C. An abnormal return D. None of these options

C

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

D

Among the important characteristics of market efficiency is (are) that: I. There are no arbitrage opportunities. II. Security prices react quickly to new information. III. Active trading strategies will not consistently outperform passive strategies. A. I only B. II only C. I and III only D. I, II, and III

D

Most tests of semistrong efficiency are _________. A. designed to test whether inside information can be used to generate abnormal returns B. based on technical trading rules C. unable to generate any evidence of market anomalies D. joint tests of market efficiency and the risk-adjustment measure

D

Proponents of the EMH think technical analysts __________. A. should focus on relative strength B. should focus on resistance levels C. should focus on support levels D. are wasting their time

D

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

D

Someone who invests in the Vanguard Index 500 mutual fund could most accurately be described as using which approach? A. Active management B. Arbitrage C. Fundamental analysis D. Passive investment

D

The semistrong form of the efficient market hypothesis implies that ____________ generate abnormal returns and ____________ generate abnormal returns. A. technical analysis cannot; fundamental analysis can B. technical analysis can; fundamental analysis can C. technical analysis can; fundamental analysis cannot D. technical analysis cannot; fundamental analysis cannot

D

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

D

Which of the following statements is (are) correct? A. If a market is weak-form efficient, it is also semistrong- and strong-form efficient. B. If a market is semistrong-form efficient, it is also strong-form efficient. C. If a market is strong-form efficient, it is also semistrong- but not weak-form efficient. D. If a market is strong-form efficient, it is also semistrong- and weak-form efficient.

D