Question 1

Which one of these terms is used to describe a principle where investors draw conclusions from insufficient data?

Accepted Answer

A)  Representativeness
B)  Synergy
C)  Conservatism
D)  Arbitrage
E)  Independent deviations from rationalityF) C) and D)
G) B) and D) A

Question 2

Insider trading does not offer any advantages if the financial markets are

Accepted Answer

A)  inefficient.
B)  semiweak form efficient.
C)  semistrong form efficient.
D)  strong form efficient.
E)  weak form efficient.F) A) and E)
G) B) and E)

Question 3

Market prices can be efficiently priced if

Accepted Answer

A)  brokerage commissions are zero.
B)  a number of interested traders use the publicly available information.
C)  securities always offer a positive rate of return to investors.
D)  the prices are guaranteed by the U.S.Securities and Exchange Commission.
E)  taxes are irrelevant.F) B) and D)
G) A) and E)

Question 4

If markets are strong-form efficient,then event studies should show that new information affects a related stock's price

Accepted Answer

A)  for a single day.
B)  only when the new information relates to a dividend payment.
C)  over a range of days with the overreactions exactly offsetting the underreactions.
D)  only if the information is company specific.
E)  by a very minimal amount,if any.F) None of the above
G) A) and D)

Question 5

If you live in a remote area with limited access to the news but do a lot of historical research on firms,you would prefer that the financial markets be ________ form efficient so you can have an advantage in the marketplace.

Accepted Answer

A)  strong
B)  semiweak
C)  semistrong
D)  perfect
E)  weakF) B) and C)
G) D) and E) E

Question 6

Representativeness,according to financial economists,leads to

Accepted Answer

A)  overreactions in stock returns.
B)  abnormal long-term profits.
C)  stock price under reactions to new information.
D)  stable stock returns over both short and long periods of time.
E)  strong form efficient financial markets.F) B) and C)
G) C) and D)

Question 7

Choices between various accounting methods should not affect stock prices if

Accepted Answer

A)  and only if the financial markets are strong form efficient.
B)  the financial market is weak form efficient and the investors are at least somewhat rational.
C)  the markets have recently experienced the bursting of a market bubble.
D)  companies consistently select the most conservative of the allowable methods.
E)  markets are at least semistrong form efficient and firms provide sufficient information so investors can analyze those choices.F) D) and E)
G) A) and E)

Question 8

Efficient markets require which one of these?

Accepted Answer

A)  Dart thrower investors
B)  Only rational investors
C)  Overly optimistic amateur investors
D)  Countervailing irrationalities
E)  Investors adhering to the conservatism principleF) B) and C)
G) D) and E) D

Question 9

The abnormal return in an event study is described as the

Accepted Answer

A)  actual return on a security minus the market rate of return on the same date.
B)  total return earned by a security on the date of an announcement affecting that security.
C)  total return earned on a security for the 7-day period commencing 3 days prior to an announcement affecting that security.
D)  change in market value of a security on the day of an announcement affecting that security.
E)  any change in the market price of a security that exceeds 5 percent over a 7-day period.F) A) and D)
G) A) and C)

Question 10

Stock prices fluctuate daily.In relation to the efficient market hypothesis,these fluctuations are

Accepted Answer

A)  inconsistent with the semistrong form of efficiency because prices should be stable.
B)  inconsistent with all forms of market efficiency.
C)  consistent with the semistrong form because new information arrives daily.
D)  consistent with the strong form because prices and information are controlled by insiders.
E)  consistent with all forms of market efficiency provided the prices do fluctuate on a daily basis.F) A) and E)
G) B) and C)

Question 11

Even though no final conclusion is currently warranted,a number of research papers,including those of Fama and French,have argued that

Accepted Answer

A)  there is no noticeable difference in the returns of growth versus value stocks.
B)  growth stocks outperform value stocks.
C)  stocks with high book-value-to-stock-price ratios outperform stocks with low ratios.
D)  no observable differences in returns can be associated with varying price-earnings ratios.
E)  stocks with low earnings-to-price ratios outperform stocks with high ratios.F) A) and E)
G) None of the above

Question 12

Weak form efficiency is best defined as a market where current prices are based on

Accepted Answer

A)  totally rational decisions.
B)  historical prices.
C)  information known to any person or organization.
D)  all publicly available information.
E)  irrational decisions by amateur investors.F) C) and D)
G) None of the above

Question 13

Markets tend to be efficient when

Accepted Answer

A)  arbitrage is unlawful.
B)  amateurs dominate the market.
C)  all investors are required to be rational.
D)  professional arbitrage exceeds amateur speculation.
E)  prices adjust to new information slowly.F) C) and D)
G) None of the above

Question 14

The efficient market hypothesis says that,on average,professional investors will

Accepted Answer

A)  tend to earn below average rates of returns.
B)  earn a normal rate of return.
C)  outperform investors with inside information.
D)  tend to outperform most market participants.
E)  earn the same rate of return over time regardless of the risk assumed.F) A) and E)
G) A) and D)

Question 15

If behavioral finance holds,this implies

Accepted Answer

A)  all investors are irrational some of the time.
B)  all investors are irrational all the time.
C)  some investors are irrational some of the time.
D)  some investors are irrational all of the time.
E)  all investors are rational all of the time.F) D) and E)
G) B) and D)

Question 16

The principle that investors slowly adjust their beliefs to new information is referred to as

Accepted Answer

A)  conservatism.
B)  stockholder disinterest.
C)  reversal.
D)  insider trading.
E)  continuation.F) B) and C)
G) A) and E)

Question 17

Your best friend works in the finance office of the Delta Corporation.You are aware that this friend trades Delta stock based on information he overhears in the office.You know that this information is not known to the general public.Your friend continually brags to you about the profits he earns trading Delta stock.Based on this information,you would tend to argue that the financial markets are at best ________ form efficient.

Accepted Answer

A)  weak
B)  semistrong
C)  semiweak
D)  strong
E)  perfectF) A) and B)
G) C) and D)

Question 18

Serial correlation

Accepted Answer

A)  indicates a reversal in the direction of returns when the coefficient is positive.
B)  involves the relationship of one stock's returns over various time periods.
C)  indicates a tendency toward reversal when its coefficient is positive.
D)  measures the cumulative difference between the returns on two similar securities.
E)  measures the current relationship between the returns on two securities.F) C) and D)
G) A) and D)

Question 19

Which one of the following statements is correct concerning market efficiency?

Accepted Answer

A)  New information will gradually be reflected in a stock's price to avoid any sudden change in the price of the stock in an efficient market.
B)  In an efficient market,some market participants will have an advantage over others.
C)  If a market is efficient,arbitrage opportunities should be common.
D)  Real asset markets are more efficient than financial markets.
E)  A firm will generally receive a fair price when it sells shares of stock in an efficient market.F) A) and D)
G) A) and C)

Question 20

In an efficient market,the price of a security will

Accepted Answer

A)  react immediately to new information with no further price adjustments related to that information.
B)  react to new information over a 2-day period after which time no further price adjustments related to that information will occur.
C)  rise sharply when new information is first released and then decline to a new stable level by the following day.
D)  always rise immediately upon the release of new information with no further price adjustments related to that information.
E)  be slow to react for the first few hours after new information is released allowing time for that information to be reviewed and analyzed.F) B) and E)
G) B) and C)

Exam 13: Efficient Capital Markets and Behavioral Challenges

Which one of these terms is used to describe a principle where investors draw conclusions from insufficient data?

Correct Answer
verified
A

Insider trading does not offer any advantages if the financial markets are

Correct Answer
verified

Market prices can be efficiently priced if

Correct Answer
verified

If markets are strong-form efficient,then event studies should show that new information affects a related stock's price

Correct Answer
verified

If you live in a remote area with limited access to the news but do a lot of historical research on firms,you would prefer that the financial markets be ________ form efficient so you can have an advantage in the marketplace.

Correct Answer
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E

Representativeness,according to financial economists,leads to

Correct Answer
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Choices between various accounting methods should not affect stock prices if

Correct Answer
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Efficient markets require which one of these?

Correct Answer
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D

The abnormal return in an event study is described as the

Correct Answer
verified

Stock prices fluctuate daily.In relation to the efficient market hypothesis,these fluctuations are

Correct Answer
verified

Even though no final conclusion is currently warranted,a number of research papers,including those of Fama and French,have argued that

Correct Answer
verified

Weak form efficiency is best defined as a market where current prices are based on

Correct Answer
verified

Markets tend to be efficient when

Correct Answer
verified

The efficient market hypothesis says that,on average,professional investors will

Correct Answer
verified

If behavioral finance holds,this implies

Correct Answer
verified

The principle that investors slowly adjust their beliefs to new information is referred to as

Correct Answer
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Correct Answer
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Serial correlation

Correct Answer
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Which one of the following statements is correct concerning market efficiency?

Correct Answer
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In an efficient market,the price of a security will

Correct Answer
verified

Exam 13: Efficient Capital Markets and Behavioral Challenges

Which one of these terms is used to describe a principle where investors draw conclusions from insufficient data?

Correct AnswerverifiedA

Insider trading does not offer any advantages if the financial markets are

Correct AnswerverifiedShow Answer

Market prices can be efficiently priced if

Correct AnswerverifiedShow Answer

If markets are strong-form efficient,then event studies should show that new information affects a related stock's price

Correct AnswerverifiedShow Answer

If you live in a remote area with limited access to the news but do a lot of historical research on firms,you would prefer that the financial markets be ________ form efficient so you can have an advantage in the marketplace.

Correct AnswerverifiedE

Representativeness,according to financial economists,leads to

Correct AnswerverifiedShow Answer

Choices between various accounting methods should not affect stock prices if

Correct AnswerverifiedShow Answer

Efficient markets require which one of these?

Correct AnswerverifiedD

The abnormal return in an event study is described as the

Correct AnswerverifiedShow Answer

Stock prices fluctuate daily.In relation to the efficient market hypothesis,these fluctuations are

Correct AnswerverifiedShow Answer

Even though no final conclusion is currently warranted,a number of research papers,including those of Fama and French,have argued that

Correct AnswerverifiedShow Answer

Weak form efficiency is best defined as a market where current prices are based on

Correct AnswerverifiedShow Answer

Markets tend to be efficient when

Correct AnswerverifiedShow Answer

The efficient market hypothesis says that,on average,professional investors will

Correct AnswerverifiedShow Answer

If behavioral finance holds,this implies

Correct AnswerverifiedShow Answer

The principle that investors slowly adjust their beliefs to new information is referred to as

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Serial correlation

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning market efficiency?

Correct AnswerverifiedShow Answer

In an efficient market,the price of a security will

Correct AnswerverifiedShow Answer

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A

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E

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D

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