Question 1

To say that stock prices follow a "random walk" is to argue that

Accepted Answer

A)   stock prices rise, then fall.
B)   stock prices rise, then fall in a predictable fashion.
C)   stock prices tend to follow trends.
D)   stock prices are, for all practical purposes, unpredictable.

Question 2

The evidence suggests technical analysts are not superior stock pickers.

Accepted Answer

A) True 
 B)False

Question 3

How is it possible that a firm can announce a record-breaking loss,yet its stock price rises when the announcement is made?

Accepted Answer

The announcement effect describes the im...

Question 4

How do loss aversion,overconfidence of investors,and social contagion affect market efficiency?

Accepted Answer

Loss aversion, overconfidence of investo...

Question 5

To say that stock prices follow a "random walk" is to argue that

Accepted Answer

A)   stock prices rise, then fall, then rise again.
B)   stock prices rise, then fall in a predictable fashion.
C)   stock prices tend to follow trends.
D)   stock prices cannot be predicted based on past trends.

Question 6

Which of the following types of information will most likely enable the exploitation of a profit opportunity?

Accepted Answer

A)   Financial analysts' published recommendations
B)   Technical analysis
C)   Hot tips from a stockbroker
D)   Insider information

Question 7

The efficient markets hypothesis is weakened by evidence that

Accepted Answer

A)   stock prices tend to follow a random walk.
B)   stock prices are more volatile than fluctuations in their fundamental values can explain.
C)   technical analysis does not outperform the overall market.
D)   an investment adviser's past success or failure at picking stocks does not predict his or her future performance.

Question 8

Although the verdict is not yet in,the available evidence indicates that,for many purposes,the efficient market hypothesis is

Accepted Answer

A)   a good starting point for analyzing expectations.
B)   not a good starting point for analyzing expectations.
C)   too general to be a useful tool for analyzing expectations.
D)   none of the above.

Question 9

Evidence that a mutual fund has performed extraordinarily well in the past contradicts the efficient market hypothesis.

Accepted Answer

A) True 
 B)False

Question 10

The elimination of a riskless profit opportunity in a market is called

Accepted Answer

A)   the efficient market hypothesis.
B)   random walk.
C)   arbitrage.
D)   market fundamentals.

Question 11

When a market bubble occurs,________.

Accepted Answer

A)   prices of assets rise well above their fundamental values
B)   a "thin layer" of trading masks true market movements
C)   market fundamentals and actual security prices converge
D)   prices of assets fluctuate rapidly above and below market fundamentals

Question 12

A situation in which the price of an asset differs from its fundamental market value

Accepted Answer

A)   indicates that unexploited profit opportunities exist.
B)   indicates that unexploited profit opportunities do not exist.
C)   need not indicate that unexploited profit opportunities exist.
D)   indicates that the efficient market hypothesis is fundamentally flawed.

Question 13

Sometimes one observes that the price of a company's stock falls after the announcement of favorable earnings.This phenomenon is

Accepted Answer

A)   clearly inconsistent with the efficient market hypothesis.
B)   consistent with the efficient market hypothesis if the earnings were not as high as anticipated.
C)   consistent with the efficient market hypothesis if the earnings were not as low as anticipated.
D)   the result of none of the above.

Question 14

Another way to state the efficient market condition is that in an efficient market,

Accepted Answer

A)   unexploited profit opportunities will be quickly eliminated.
B)   unexploited profit opportunities will never exist.
C)   arbitrageurs guarantee that unexploited profit opportunities never exist.
D)   both A and C of the above occur.

Question 15

Mean reversion refers to the observation that

Accepted Answer

A)   stock prices overact to news announcements.
B)   stocks prices are more volatile than fluctuations in their fundamental value would predict.
C)   stocks with low returns are likely to have high returns in the future.
D)   stocks with low returns are likely to have even lower returns in the future.

Question 16

The advantage of a "buy and hold strategy" is that

Accepted Answer

A)   net profits will tend to be higher because there will be fewer brokerage commissions.
B)   losses will eventually be eliminated.
C)   the longer a stock is held, the higher its price will be.
D)   only B and C of the above are true.

Question 17

If the optimal forecast of the return on a security exceeds the equilibrium return,then

Accepted Answer

A)   the market is inefficient.
B)   an unexploited profit opportunity exists.
C)   the market is in equilibrium.
D)   only A and B of the above are true.
E)   only B and C of the above are true.

Question 18

Evidence in favor of market efficiency includes

Accepted Answer

A)   performance of investment analysts and mutual funds.
B)   whether stock prices reflect publicly available information.
C)   the random-walk behavior of stock prices.
D)   all of the above.

Question 19

Evidence in favor of market efficiency does not include

Accepted Answer

A)   random-walk behavior.
B)   technical analysis.
C)   performance of investment analysts and mutual funds.
D)   the January effect.

Question 20

If the security markets are truly efficient,there is no need to pay for help selecting securities.

Accepted Answer

A) True 
 B)False

Exam 6: Are Financial Markets Efficient?

Another way to state the efficient market condition is that in an efficient market,

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Sometimes one observes that the price of a company's stock falls after the announcement of favorable earnings.This phenomenon is

Correct AnswerverifiedShow Answer

Which of the following types of information will most likely enable the exploitation of a profit opportunity?

Correct AnswerverifiedShow Answer

Evidence in favor of market efficiency includes

Correct AnswerverifiedShow Answer

A situation in which the price of an asset differs from its fundamental market value

Correct AnswerverifiedShow Answer

The efficient markets hypothesis is weakened by evidence that

Correct AnswerverifiedShow Answer

When a market bubble occurs,________.

Correct AnswerverifiedShow Answer

If the optimal forecast of the return on a security exceeds the equilibrium return,then

Correct AnswerverifiedShow Answer

The advantage of a "buy and hold strategy" is that

Correct AnswerverifiedShow Answer

How do loss aversion,overconfidence of investors,and social contagion affect market efficiency?

Correct AnswerAnswered by ExamLex AILoss aversion, overconfidence of investo...View AnswerShow Answer

Mean reversion refers to the observation that

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The evidence suggests technical analysts are not superior stock pickers.

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To say that stock prices follow a "random walk" is to argue that

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Evidence in favor of market efficiency does not include

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If the security markets are truly efficient,there is no need to pay for help selecting securities.

Correct AnswerverifiedShow Answer

How is it possible that a firm can announce a record-breaking loss,yet its stock price rises when the announcement is made?

Correct AnswerverifiedThe announcement effect describes the im...View AnswerShow Answer

Evidence that a mutual fund has performed extraordinarily well in the past contradicts the efficient market hypothesis.

Correct AnswerverifiedShow Answer

Although the verdict is not yet in,the available evidence indicates that,for many purposes,the efficient market hypothesis is

Correct AnswerverifiedShow Answer

The elimination of a riskless profit opportunity in a market is called

Correct AnswerverifiedShow Answer

To say that stock prices follow a "random walk" is to argue that

Correct AnswerverifiedShow Answer

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Loss aversion, overconfidence of investo...
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The announcement effect describes the im...
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