Question 1

If an investor searches for patterns in security returns by examining various techniques applied to a set of data and then applying the technique that works, this is known as:

Accepted Answer

A)   fundamental analysis.
B)   technical analysis.
C)   random-walk theory.
D)   data mining.

Question 2

According to the behavioral finance, markets are always

Accepted Answer

A)   informationally efficient.
B)   informationally inefficient.
C)   weak-form efficient.
D)   semi-strong form efficient.

Question 3

The paradox of efficient markets is that

Accepted Answer

A)   even though markets are efficient overall, there are pockets of inefficiency.
B)   news about anomalies makes the market less efficient.
C)   investors attempting to uncover and use information about security prices help make the market more efficient (i.e., an "efficient amount of inefficiency") 
D)   investors make the market less efficient.

Question 4

All of the following conditions must occur for a market to be considered efficient except:

Accepted Answer

A)   Information is costless and widely available to market participants at approximately the same time.
B)   Information is generated in a specific fashion such that announcements are basically dependent on each other.
C)   There are a large number of rational, profit-maximizing investors who actively participate in the market.
D)   Investors react quickly and fully to the new information, causing stock prices to adjust accordingly.

Question 5

Which of the following is true regarding the size anomaly?

Accepted Answer

A)   As much as 50% of small cap outperformance is associated with the January effect.
B)   Small cap stocks underperform large cap stocks in recent years.
C)   Small cap stock outperformance is a NASDAQ phenomenon, not NYSE.
D)   Small cap stock outperformance is unaffected by micro-cap, commission, or liquidity (i.e., bid-ask spread)  concerns.

Question 6

Under the weak form of the EMH, technical analysis relying on the history of price information is of no value in trying to outperform the future market.

Accepted Answer

A) True 
 B)False

Question 7

If a market is inefficient, as new information is received about a security:

Accepted Answer

A)   nothing will happen.
B)   the stock price will fall at first and then later rise.
C)   there will be a lag in the adjustment of the stock price
D)   there will be negative demand for the stock.

Question 8

Which of the following markets is generally considered to be the most efficient:

Accepted Answer

A)   China.
B)   India.
C)   Russia.
D)   U.S.

Question 9

Tests of the strong-form EMH include studies of corporate insiders and event studies.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following announcements has NOT been involved in a direct test of the semi-strong form of the EMH?

Accepted Answer

A)   Dividend announcements
B)   Accounting changes
C)   Stock splits
D)   Corporate insiders' actions

Question 11

Which of the following is a market anomaly?

Accepted Answer

A)   A relationship between money supply growth and stock prices.
B)   A relationship between P/E ratios and subsequent stock returns.
C)   Independence of stock price changes.
D)   Adjustment of stock prices due to accounting changes. B

Question 12

We can expect that the U.S. stock markets will be efficient for all of the following reasons EXCEPT:

Accepted Answer

A)   A large number of rational, profit-maximizing investors exist who actively participate in the U.S. market by analyzing, valuing, and trading stocks.
B)   The U.S. economy is the largest in the world, with the most sophisticated investors.
C)   Information is costless and widely available to market participants at approximately the same time.
D)   Investors react quickly and fully to the new information, causing stock prices to adjust accordingly. B

Question 13

All of the following are considered market anomalies EXCEPT:

Accepted Answer

A)   size effect
B)   January effect
C)   earnings announcement anomaly
D)   accounting changes effect

Question 14

The January effect concerns:

Accepted Answer

A)   large cap stocks.
B)   mid-cap stocks.
C)   small cap stocks.
D)   foreign stocks.

Question 15

Insider trading is illegal in the U. S. How is this related to the strong form EMH?

Accepted Answer

If the strong form EMH were valid, insid...

Question 16

An investor who believes in the strong form of the EMH should be an active investor.

Accepted Answer

A) True 
 B)False

Question 17

According to the random walk hypothesis, price(s)

Accepted Answer

A)   over time are independent of one another.
B)   changes over time are independent.
C)   levels over time are independent.
D)   changes today are dependent on yesterday's price changes.

Question 18

What is a market anomaly? Give examples of several market anomalies.

Accepted Answer

An anomaly is an exception to a rule. Ma...

Question 19

Select the FALSE statement concerning efficient markets.

Accepted Answer

A)   The current price of a stock reflects all known information.
B)   Investors will use all relevant data in making their decisions.
C)   A perfect adjustment in price follows any new information.
D)   Following any adjustment, the new price does not have to be the new equilibrium price.

Question 20

Tests of the semistrong EMH include:

Accepted Answer

A)   regression analysis.
B)   correlation tests that compare the security returns to the overall market return.
C)   tests of the speed of adjustment of stock prices to company announcements.
D)   queuing line theory tests. C

Exam 12: What Happens If Markets Are Efficient or Not?

If an investor searches for patterns in security returns by examining various techniques applied to a set of data and then applying the technique that works, this is known as:

Correct AnswerverifiedShow Answer

According to the behavioral finance, markets are always

Correct AnswerverifiedShow Answer

The paradox of efficient markets is that

Correct AnswerverifiedShow Answer

All of the following conditions must occur for a market to be considered efficient except:

Correct AnswerverifiedShow Answer

Which of the following is true regarding the size anomaly?

Correct AnswerverifiedShow Answer

Under the weak form of the EMH, technical analysis relying on the history of price information is of no value in trying to outperform the future market.

Correct AnswerverifiedShow Answer

If a market is inefficient, as new information is received about a security:

Correct AnswerverifiedShow Answer

Which of the following markets is generally considered to be the most efficient:

Correct AnswerverifiedShow Answer

Tests of the strong-form EMH include studies of corporate insiders and event studies.

Correct AnswerverifiedShow Answer

Which of the following announcements has NOT been involved in a direct test of the semi-strong form of the EMH?

Correct AnswerverifiedShow Answer

Which of the following is a market anomaly?

Correct AnswerverifiedB

We can expect that the U.S. stock markets will be efficient for all of the following reasons EXCEPT:

Correct AnswerverifiedB

All of the following are considered market anomalies EXCEPT:

Correct AnswerverifiedShow Answer

The January effect concerns:

Correct AnswerverifiedShow Answer

Insider trading is illegal in the U. S. How is this related to the strong form EMH?

Correct AnswerverifiedIf the strong form EMH were valid, insid...View AnswerShow Answer

An investor who believes in the strong form of the EMH should be an active investor.

Correct AnswerverifiedShow Answer

According to the random walk hypothesis, price(s)

Correct AnswerverifiedShow Answer

What is a market anomaly? Give examples of several market anomalies.

Correct AnswerverifiedAn anomaly is an exception to a rule. Ma...View AnswerShow Answer

Select the FALSE statement concerning efficient markets.

Correct AnswerverifiedShow Answer

Tests of the semistrong EMH include:

Correct AnswerverifiedC

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B

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B

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If the strong form EMH were valid, insid...
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An anomaly is an exception to a rule. Ma...
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C