Exam 6: Are Financial Markets Efficient

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.

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A) will certainly mean higher returns than if you had made selections by throwing darts at the financial page.
B) will always mean lower returns than if you had made selections by throwing darts at the financial page.
C) is not likely to prove superior to a strategy of making selections by throwing darts at the financial page.
D) is good for the economy.

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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.

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A) investors should purchase no-load mutual funds, which have low management fees.
B) investors can use the advice of technical analysts to outperform the market.
C) investors let too many unexploited profit opportunities go by if they adopt a "buy and hold" strategy.
D) only A and B of the above are sensible strategies.

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A) is based on the assumption that prices of securities fully reflect all available information.
B) holds that the expected return on a security equals the equilibrium return.
C) both A and B.
D) neither A nor B.

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A) the small-firm effect.
B) technical analysis.
C) excessive volatility.
D) mean reversion.

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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.

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A) technical analysis outperforms the overall market.
B) technical analysis far outperforms the overall market, suggesting that stockbrokers provide valuable services.
C) technical analysis does not outperform the overall market.
D) technical analysis does not outperform the overall market, suggesting that stockbrokers do not provide services of any value.

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A) one cannot expect to earn an abnormally high return by purchasing a security.
B) information in newspapers and in the published reports of financial analysts is already reflected in market prices.
C) unexploited profit opportunities abound, thereby explaining why so many people get rich by trading securities.
D) all of the above are true.
E) only A and B of the above are true.

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Expectations play a crucial role in unde...

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A) buying a stock; selling it at a higher price
B) selling a stock; buying it back at a lower price
C) buying a stock; selling it at a lower price
D) selling a stock; buying it back at a higher price

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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.

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