Question 1

If the capital markets are efficient, then the sale or purchase of any security at the market price is:

Accepted Answer

A)  a negative NPV transaction.
B)  a positive NPV transaction.
C)  sometimes a zero NPV transaction.
D)  None of the above.

Question 2

How are abnormal returns defined?

Accepted Answer

A)  Returns in excess of the market return
B)  Returns in excess of the risk-free rate
C)  Returns in excess of the risk-adjusted expected return
D)  Positive return

Question 3

Which of the following is an underlying assumption of the existence of an efficient market?

Accepted Answer

A)  A small number of rational, profit-maximizing investors exist.
B)  Information is costly and not widely available to market participants.
C)  Investors don't react quickly and fully to new information.
D)  None of the above D

Question 4

If information does not arrive randomly and the market rapidly and accurately adjusts to any new information, stock prices will

Accepted Answer

A)  follow a random walk.
B)  not follow a random walk.
C)  behave in a deterministic manner.
D)  behave in a completely random manner.

Question 5

A university professor is researching the impact of non-public information on the marketplace.She finds that investors who do have access to material, non-public information are consistently earning above-average risk-adjusted returns, and that the market price of the targeted securities are partially reflecting the new information.This is a violation of:
I.Strong form market efficiency
II.Semi-strong market efficiency
III.Weak form market efficiency

Accepted Answer

A)  I only
B)  I and II
C)  I and III
D)  II and III

Question 6

Which of the following refers to the market condition where there are enough securities to efficiently allocate risk?

Accepted Answer

A)  Operational efficiency
B)  Allocational efficiency
C)  Informational efficiency
D)  Liquidity efficiency

Question 7

Which of the following is FALSE? Market efficiency implies:

Accepted Answer

A)  new information disseminates quickly.
B)  investors can take advantage of temporary time lags in information dissemination.
C)  new information is instantly reflected in share prices.
D)  the prices of securities are considered "right" at any time given their risk profile.

Question 8

Jane Wong has developed a technical trading rule that has consistently made a risk-adjusted return of 15% per month for the past 10 years.This is evidence of:

Accepted Answer

A)  semi-strong form efficiency.
B)  semi-strong form inefficiency.
C)  weak form efficiency.
D)  weak form inefficiency.

Question 9

If markets were strong form efficient, which of the following situations would yield abnormal returns?

Accepted Answer

A)  Analyzing a company's earnings report.
B)  Identifying a pattern in a company's stock price
C)  Obtaining insider information.
D)  None of the above would yield abnormal returns.

Question 10

Melanie has observed that stocks that have earned high returns over the past year tend to earn low returns over the next year.She has also observed that stocks that earned low returns over the past year tended to earn high returns over the next year.This is an example of:

Accepted Answer

A)  the January effect.
B)  long-term reversal pattern.
C)  stock price momentum.
D)  size effect.

Question 11

The announcement of the sudden accidental death of the CEO and principal scientist of a corporation is associated with a 12% decrease in the company's stock price.Which form of market efficiency is contradicted?

Accepted Answer

A)  Weak form
B)  Semi-strong form
C)  Strong form
D)  No form of efficiency is contradicted.

Question 12

Empirical support for market efficiency is strongest for:

Accepted Answer

A)  weak form.
B)  semi-strong form.
C)  strong form.
D)  no form of market efficiency is supported by the data.

Question 13

What does operational efficiency refer to?

Accepted Answer

A)  Prices that quickly reflect important information
B)  Low transaction costs
C)  Sufficient securities to efficiently allocate risk
D)  Both A and B are correct. B

Question 14

Technical analysis, which is defined as the analysis of historical trends of prices, is an important field in finance.Which form of efficiency is this field based on?

Accepted Answer

A)  Weak form inefficiency
B)  Semi-strong form inefficiency
C)  Strong form inefficiency
D)  It has nothing to do with efficiency.

Question 15

If markets were semi-strong form efficient, which of the following situations would yield abnormal returns?

Accepted Answer

A)  Analyzing a company's earnings report.
B)  Identifying a pattern in a company's stock price.
C)  Obtaining insider information.
D)  None of the above would yield abnormal returns.

Question 16

Which of the following best describes behavioural finance?

Accepted Answer

A)  investor behaviour is not always rational but is influenced by psychological biases.
B)  investor behaviour is always rational and influenced by psychological biases.
C)  only professional investors will behave rationally and logically while inexperienced investors are influenced by psychological biases.
D)  investors will consider all available information when making their investment decisions and will ignore all personal biases and opinions.

Question 17

Use the following statements to answer the question:
I.Increasing disclosure of information about the firm enhances transparency in the market.
II.Disclosure enhances the understanding of a firm's actions, hence it increases the efficiency of the market.

Accepted Answer

A)  I is incorrect, II is correct.
B)  I is correct, II is incorrect.
C)  I and II are incorrect.
D)  I and II are correct.

Question 18

Which of the following is classified as market efficiency?

Accepted Answer

A)  Weak form
B)  Semi-strong form
C)  Strong form
D)  All of the above

Question 19

Liam, the manager of The Snoring Gryphon, your local Irish pub, is very confused.He has observed that the stock of Gryphon earns higher returns in January than in March.He expected the stock to do better around St.Patrick's Day when the pub's sales are the highest.Explain these two observations to Liam.

Accepted Answer

The St.Patrick's Day non-effect (this te...

Question 20

Which of the following is NOT true about the efficient market hypothesis?

Accepted Answer

A)  Market prices reflect all available information at any given time.
B)  Market prices do not fluctuate dramatically.
C)  Market prices are considered fair.
D)  Investors cannot continuously earn an excess return over and above the risk-adjusted return. B

Exam 10: Market Efficiency

If the capital markets are efficient, then the sale or purchase of any security at the market price is:

Correct Answer
verified

How are abnormal returns defined?

Correct Answer
verified

Which of the following is an underlying assumption of the existence of an efficient market?

Correct Answer
verified
D

If information does not arrive randomly and the market rapidly and accurately adjusts to any new information, stock prices will

Correct Answer
verified

Correct Answer
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Which of the following refers to the market condition where there are enough securities to efficiently allocate risk?

Correct Answer
verified

Which of the following is FALSE? Market efficiency implies:

Correct Answer
verified

Jane Wong has developed a technical trading rule that has consistently made a risk-adjusted return of 15% per month for the past 10 years.This is evidence of:

Correct Answer
verified

If markets were strong form efficient, which of the following situations would yield abnormal returns?

Correct Answer
verified

Melanie has observed that stocks that have earned high returns over the past year tend to earn low returns over the next year.She has also observed that stocks that earned low returns over the past year tended to earn high returns over the next year.This is an example of:

Correct Answer
verified

The announcement of the sudden accidental death of the CEO and principal scientist of a corporation is associated with a 12% decrease in the company's stock price.Which form of market efficiency is contradicted?

Correct Answer
verified

Empirical support for market efficiency is strongest for:

Correct Answer
verified

What does operational efficiency refer to?

Correct Answer
verified
B

Technical analysis, which is defined as the analysis of historical trends of prices, is an important field in finance.Which form of efficiency is this field based on?

Correct Answer
verified

If markets were semi-strong form efficient, which of the following situations would yield abnormal returns?

Correct Answer
verified

Which of the following best describes behavioural finance?

Correct Answer
verified

Use the following statements to answer the question: I.Increasing disclosure of information about the firm enhances transparency in the market. II.Disclosure enhances the understanding of a firm's actions, hence it increases the efficiency of the market.

Correct Answer
verified

Which of the following is classified as market efficiency?

Correct Answer
verified

Correct Answer
verified
The St.Patrick's Day non-effect (this te...
View Answer

Which of the following is NOT true about the efficient market hypothesis?

Correct Answer
verified
B

Exam 10: Market Efficiency

If the capital markets are efficient, then the sale or purchase of any security at the market price is:

Correct AnswerverifiedShow Answer

How are abnormal returns defined?

Correct AnswerverifiedShow Answer

Which of the following is an underlying assumption of the existence of an efficient market?

Correct AnswerverifiedD

If information does not arrive randomly and the market rapidly and accurately adjusts to any new information, stock prices will

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following refers to the market condition where there are enough securities to efficiently allocate risk?

Correct AnswerverifiedShow Answer

Which of the following is FALSE? Market efficiency implies:

Correct AnswerverifiedShow Answer

Jane Wong has developed a technical trading rule that has consistently made a risk-adjusted return of 15% per month for the past 10 years.This is evidence of:

Correct AnswerverifiedShow Answer

If markets were strong form efficient, which of the following situations would yield abnormal returns?

Correct AnswerverifiedShow Answer

Melanie has observed that stocks that have earned high returns over the past year tend to earn low returns over the next year.She has also observed that stocks that earned low returns over the past year tended to earn high returns over the next year.This is an example of:

Correct AnswerverifiedShow Answer

The announcement of the sudden accidental death of the CEO and principal scientist of a corporation is associated with a 12% decrease in the company's stock price.Which form of market efficiency is contradicted?

Correct AnswerverifiedShow Answer

Empirical support for market efficiency is strongest for:

Correct AnswerverifiedShow Answer

What does operational efficiency refer to?

Correct AnswerverifiedB

Technical analysis, which is defined as the analysis of historical trends of prices, is an important field in finance.Which form of efficiency is this field based on?

Correct AnswerverifiedShow Answer

If markets were semi-strong form efficient, which of the following situations would yield abnormal returns?

Correct AnswerverifiedShow Answer

Which of the following best describes behavioural finance?

Correct AnswerverifiedShow Answer

Use the following statements to answer the question: I.Increasing disclosure of information about the firm enhances transparency in the market. II.Disclosure enhances the understanding of a firm's actions, hence it increases the efficiency of the market.

Correct AnswerverifiedShow Answer

Which of the following is classified as market efficiency?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe St.Patrick's Day non-effect (this te...View AnswerShow Answer

Which of the following is NOT true about the efficient market hypothesis?

Correct AnswerverifiedB

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D

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B

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The St.Patrick's Day non-effect (this te...
View Answer

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B