Question 1

Insider trading does not offer any advantages if the financial markets are:

Accepted Answer

A)   weak form efficient.
B)   semiweak form efficient.
C)   semistrong form efficient.
D)   strong form efficient.
E)   inefficient.

Question 2

Which of the following is true?

Accepted Answer

A)   Most empirical evidence is consistent with strong form efficiency.
B)   Most empirical evidence is inconsistent with weak form efficiency.
C)   Strong form market efficiency is not supported by the empirical evidence.
D)   Both Most empirical evidence is consistent with strong form efficiency; and Strong form market efficiency is not supported by the empirical evidence.
E)   Both Most empirical evidence is inconsistent with weak form efficiency; and Strong form market efficiency is not supported by the empirical evidencE.

Question 3

Market efficiency says:

Accepted Answer

A)   prices may not reflect underlying value.
B)   a good financial manager can time stock sales.
C)   managers may profitably speculate in foreign currency.
D)   managers cannot boost stock prices through creative accounting.
E)   None of these.

Question 4

Strong form market efficiency

Accepted Answer

A)   accurately reflects all information, both public and private.
B)   only accurately reflects private information.
C)   reflects only public information.
D)   implies weak form market inefficiency.
E)   implies semi-strong form market inefficiency.

Question 5

An investor who picks a portfolio by throwing darts at the financial pages:

Accepted Answer

A)   believes that efficient markets will protect the portfolio from harm as all information is priced.
B)   believes that riskier portfolios earn the same as less risky portfolios.
C)   does so because stock prices do not matter; only cash flow generated matters.
D)   Both believes that efficient markets will protect the portfolio from harm as all information is priced; and does so because stock prices do not matter; and only cash flow generated matters.
E)   Both believes that riskier portfolios earn the same as less risky portfolios; and does so because stock prices do not matter; and only cash flow generated matters.

Question 6

The abnormal return in an event study is described as:

Accepted Answer

A)   the return earned on the day of announcement for the stock.
B)   the excess return earned on the day of announcement for the stock.
C)   the total return earned for the investment holding period.
D)   All of these.
E)   None of these.

Question 7

Suppose that firms with unexpectedly high earnings earn abnormally high returns for several months after the announcement. This would be evidence of:

Accepted Answer

A)   efficient markets in the weak form.
B)   inefficient markets in the weak form.
C)   efficient markets in the semistrong form.
D)   inefficient markets in the semistrong form.
E)   inefficient markets in the strong form.

Question 8

Studies of the performance of professionally managed mutual funds find that these funds:

Accepted Answer

A)   do not outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding refutes the semistrong form of the efficient market hypothesis.
B)   do not outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding supports the semistrong form of the efficient market hypothesis.
C)   outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding refutes the semistrong form of the efficient market hypothesis.
D)   outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding supports the semistrong form of the efficient market hypothesis.
E)   Both outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding refutes the semistrong form of the efficient market hypothesis; and outperform a market index. Assuming mutual fund managers rely primarily on public information, this finding supports the semistrong form of the efficient market hypothesis.

Question 9

The notion that actual capital markets,such as the NYSE,are fairly priced is called the:

Accepted Answer

A)   Efficient Markets Hypothesis (EMH) .
B)   Law of One Price.
C)   Open Markets Theorem.
D)   Laissez-Faire Axiom.
E)   Monopoly Pricing Theorem.

Question 10

If you excel in analyzing the future outlook of firms,you would prefer that the financial markets be ____ form efficient so that you can have an advantage in the marketplace.

Accepted Answer

A)   weak
B)   semiweak
C)   semistrong
D)   strong
E)   perfect

Question 11

The hypothesis that market prices reflect all publicly available information is called _____ form efficiency.

Accepted Answer

A)   open
B)   strong
C)   semistrong
D)   weak
E)   stable

Question 12

Event studies attempt to measure:

Accepted Answer

A)   the influence of information released to the market on returns in days surrounding its announcement.
B)   if the market is at least semistrong form efficient.
C)   whether there is a significant reaction to public announcements.
D)   All of these.
E)   None of these.

Question 13

The hypothesis that market prices reflect all available information of every kind is called _____ form efficiency.

Accepted Answer

A)   open
B)   strong
C)   semistrong
D)   weak
E)   stable

Question 14

In order to create value from capital budgeting decisions,the firm is likely to:

Accepted Answer

A)   locate an unsatisfied demand for a particular product or service.
B)   create a barrier to make it more difficult for other firms to compete.
C)   produce products or services at a lower cost than the competition.
D)   locate an unsatisfied demand for a particular product or service and produce products or services at a lower cost than the competition.
E)   locate an unsatisfied demand for a particular product or service; create a barrier to make it more difficult for other firms to compete; and produce products or services at a lower cost than the competition.

Question 15

Which of the following statements is true?

Accepted Answer

A)   In efficient markets, a stock's price should change with the arrival of new information.
B)   Average stock returns are higher in January than other months.
C)   Studies by Fama and French and others find that returns of high book to market stocks are much higher than low book to market value stocks to be consistent with the efficient market hypothesis.
D)   All of these.
E)   None of these.

Question 16

A lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages. He finds that he can "beat the market" by short-selling the stock of the firm that will be sued. This finding is a violation of the:

Accepted Answer

A)   moderate form of the efficient market hypothesis.
B)   semistrong form of the efficient market hypothesis.
C)   strong form of the efficient market hypothesis.
D)   weak form of the efficient market hypothesis.
E)   None of these.

Question 17

Define the three forms of market efficiency.

Accepted Answer

The student should present a straightfor...

Question 18

Valuable financing opportunities can be created by:

Accepted Answer

A)   fooling investors.
B)   reducing costs or increasing subsidies.
C)   the creation of a new security.
D)   fooling investors and reducing costs or increasing subsidies.
E)   fooling investors; reducing costs or increasing subsidies; and the creation of a new security.

Question 19

The average serial correlation,which indicates if there is a relationship between yesterday's return and today's return for the 100 largest companies is

Accepted Answer

A)   positive, and large.
B)   not possible to calculate.
C)   zero.
D)   positive, but small.
E)   negative, but small.

Question 20

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV,the price of the stock will:

Accepted Answer

A)   rise gradually over the next few days.
B)   decline gradually over the next few days.
C)   rise on the same day to the new price.
D)   stay at the same price, with no net effect.
E)   drop on the same day to the new pricE.

Exam 14: Efficient Capital Markets and Behavioral Challenges

Insider trading does not offer any advantages if the financial markets are:

Correct AnswerverifiedShow Answer

The hypothesis that market prices reflect all available information of every kind is called _____ form efficiency.

Correct AnswerverifiedShow Answer

A lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages. He finds that he can "beat the market" by short-selling the stock of the firm that will be sued. This finding is a violation of the:

Correct AnswerverifiedShow Answer

Suppose that firms with unexpectedly high earnings earn abnormally high returns for several months after the announcement. This would be evidence of:

Correct AnswerverifiedShow Answer

In order to create value from capital budgeting decisions,the firm is likely to:

Correct AnswerverifiedShow Answer

Which of the following is true?

Correct AnswerverifiedShow Answer

Event studies attempt to measure:

Correct AnswerverifiedShow Answer

Market efficiency says:

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Valuable financing opportunities can be created by:

Correct AnswerverifiedShow Answer

The notion that actual capital markets,such as the NYSE,are fairly priced is called the:

Correct AnswerverifiedShow Answer

Strong form market efficiency

Correct AnswerverifiedShow Answer

The abnormal return in an event study is described as:

Correct AnswerverifiedShow Answer

If you excel in analyzing the future outlook of firms,you would prefer that the financial markets be ____ form efficient so that you can have an advantage in the marketplace.

Correct AnswerverifiedShow Answer

Studies of the performance of professionally managed mutual funds find that these funds:

Correct AnswerverifiedShow Answer

In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV,the price of the stock will:

Correct AnswerverifiedShow Answer

The hypothesis that market prices reflect all publicly available information is called _____ form efficiency.

Correct AnswerverifiedShow Answer

An investor who picks a portfolio by throwing darts at the financial pages:

Correct AnswerverifiedShow Answer

The average serial correlation,which indicates if there is a relationship between yesterday's return and today's return for the 100 largest companies is

Correct AnswerverifiedShow Answer

Define the three forms of market efficiency.

Correct AnswerverifiedThe student should present a straightfor...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The student should present a straightfor...
View Answer