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The return earned in an average year over a multiyear period is called the
Arithmetic
Efficient Market Hypothesis V2
Beating the market is impossible, because stocks are accurately priced and reflect all information. So only way to make a profit (higher returns than an index) is by buying high risk investments.
Risk return trade off
greater risk, greater potential award
Risk premium
return over and above the risk free rate
efficient market reaction
the price of the stock instantaneously adjusts to and fully reflects new info
Efficient capital markets
Any market in which securities are traded where new information is incorporated into prices very quickly. Like competitive market
overly optimistic for long horizons
Arithmetic average, 15 - 20 years or less: use the arithmetic
What was the average rate of inflation over the period of 1926-2013?
Between 2.8 and 3.2 percent
If the variability of the returns on large-company stocks were to decrease over the long-term, you would expect which one of the following to occur as a result?
Decrease in the 68 percent probability range of returns
Generally speaking, which of the following most correspond to a wide frequency distribution?
High standard deviation, large risk premium
Evidence seems to support the view that studying public information to identify mispriced stocks is:
Ineffective .
The normal distribution is a symmetric, bell-shaped frequency distribution
It is completely defined by its mean and standard deviation
Which one of the following statements related to market efficiency tends to be supported by current evidence?
Markets tend to respond quickly to new information.
Which one of the following is defined by its mean and its standard deviation?
Normal distribution
Which one of the following categories of securities had the highest average return for the period 1926-2013?
Small company stocks
The historical record for the period 1926-2013 supports which one of the following statements?
Small-company stocks have lost as much as 50 percent and gained as much as 100 percent in a single year.
Efficient Market Hypothesis
States that all relevant information is fully and immediately reflected in a security's market price, thereby assuming that an investor will obtain an equilibrium rate of return. In other words, an investor should not expect to earn an abnormal return (above the market return)
Which one of the following statements concerning U.S. Treasury bills is correct for the period 1926- 2013?
The annual rate of return was always positive.
Which form of market efficiency would most likely offer the greatest profit potential to an outstanding professional stock analyst?
Weak
Geometric average
average compound return per period over multiple periods
overly pessimistic for short horizons
geometric average , 40 + years: use the geometric
overreaction
price over adjusts to new info
delayed reaction
price partially adjusts to new info
Arithmetic average
return earned in an average period over multiple periods
Treasury bills are considered
risk free
The greater the volatility
the greater the uncertainty
Variance and standard deviation measure
the volatility of asset returns
you can make money for any reaction
true, just need to buy low sell high, timing is important
