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Exam 8: The Efficient Market Hypothesis

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Question 31

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Which famous economist suggested that asset bubbles arise naturally as investors become more willing to take on added risk during stable periods, leading to increased asset prices?

A) Milton Friedman
B) Hyman Minsky
C) Al Gore
D) John Keynes

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Question 32

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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

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Question 33

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If the daily returns on the stock market are normally distributed with a mean of .05% and a standard deviation of 1%, the probability that the stock market would have a return of -23% or worse on one particular day (as it did on Black Monday) is approximately ________.

Market anomaly refers to ________.

Value stocks usually exhibit ________ price-to-book ratios and ________ price-to-earnings ratios.

The broadest information set is included in the ________.

The four-factor model used to construct performance benchmarks for mutual funds uses the three Fama and French factors and one additional factor related to ________.

You are an investment manager who is currently managing assets worth $6 billion. You believe that active management of your fund could generate an additional one-tenth of 1% return on the portfolio. If you want to make sure your active strategy adds value, how much can you spend on security analysis?

Most tests of semistrong efficiency are ________.

Evidence by Blake, Elton, and Gruber indicates that, on average, actively managed bond funds ________.

Growth stocks usually exhibit ________ price-to-book ratios and ________ price-to-earnings ratios.

You are looking to invest in one of three stocks. All other things being equal, Stock A has high expected earnings growth, stock B has only modest expected earnings growth, and stock C is expected to generate poor earnings growth. According to LaPorta's 1996 study, which stock is likely to generate the greatest alpha for you?

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.

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.

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 ________.

Someone who invests in the Vanguard Index 500 mutual fund could most accurately be described as using which approach?

Small firms have tended to earn abnormal returns primarily in ________.

The lack of adequate trading volume in stock that may ultimately lead to its ability to produce excess returns is referred to as the ________.

"Buy a stock if its price moves up by 2% more than the Dow Average" is an example of a ________.

Fama and French have suggested that many market anomalies can be explained as manifestations of ________.