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Finance Flashcards

Ch. 8 Finance

The weak form of the EMH states that ________ must be reflected in the current stock price.A. all past information, including security price and volume data B. all publicly available information C. all information, including inside information D. all costless information A. all past information, including security price and volume data
1.0 PointsThe semistrong form of the EMH states that ________ must be reflected in the current stock price. A. all security price and volume data B. all publicly available information C. all information, including inside information D. all costless information B. all publicly available information
The strong form of the EMH states that ________ must be reflected in the current stock price. A. all security price and volume data B. all publicly available information C. all information, including inside information D. all costless information C. all information, including inside information
Random price movements indicate A. irrational markets B. that prices cannot equal fundamental values C. that technical analysis to uncover trends can be quite useful D. that markets are functioning efficiently D. that markets are functioning efficiently
Evidence suggests that there may be _______ momentum and ________ reversal patterns in stock price behavior. A. short-run; short-run B. long-run; long-run C. long-run; short-run D. short-run; long run D. short-run; long run
Which one of the following is NOT correct? A. Choosing stocks by searching for predictable patterns in stock prices is called technical analysis. B. fundamental analysts tries to identify mispriced stocks C. An abnormal return is the return on a stock beyond what would be predicted from market movements alone. D. Most people would readily agree that the stock market is not weak-form efficient D. Most people would readily agree that the stock market is not weak-form efficient
Which one of the following statement is NOT correct? A. Proponents of the EMH think technical analysts are wasting their time B. Evidence supporting semistrong-form market efficiency suggests that investors should use a passive trading strategy such as purchasing an index fund or an ETF C. When stock returns exhibit positive serial correlation, this means that positive returns tend to follow negative returns. D. The Fama and French evidence that high book-to-market firms outperform low book-to-market firms even after adjusting for beta means that either high book-to-market firms are underpriced or the book-to-market ratio is a proxy for a systematic risk factor C. When stock returns exhibit positive serial correlation, this means that positive returns tend to follow negative returns.
which one of the following is NOT correct? A. Small firms have tended to earn abnormal returns. B. Fama and French have suggested that many market anomalies can be explained as manifestations of varying risk premiums C. Even if the markets are efficient, professional portfolio management is still important because it provides investors with low-cost diversification and a portfolio with a specified risk level. D. None of the above. D. None of the above.
Which one of the following is NOT correct? A. changes in stock prices/return follow a random walk. B. Stock price/return moves randomly because the information arrives at the market randomly C. Competition makes sure that the information is reflected in stock prices instantly. D. Random changes in stock prices indicates that the market is not rational. D. Random changes in stock prices indicates that the market is not rational.
1. The weak form EMH states that ________ must be reflected in the stock price. A) all market trading data B) all publicly available information C) all information including inside information D) none of the above A) all market trading data
1. The semi-strong form EMH states that ________ must be reflected in the stock price. A) all market trading data B) all publicly available information C) all information including inside information D) none of the above B) all publicly available information
1. 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. A. semi-strongB. strongC. weakD. perfect A. semi-strong
1. The tendency of poorly performing stocks and well performing stocks in one period to continue their performance into the next period is called the ________________. A. fad effectB. martingale effectC. momentum effectD. reversal effect C. momentum effect
1. Evidence suggests that there may be _______ momentum and ________ reversal patterns in stock price behavior. A) short-run, short-run B) long-run, long-run C) long-run, short-run D) short-run, long run D) short-run, long run
1. __________ is the return on a stock beyond what would be predicted from market movements alone. A) a normal return B) a subliminal return C) an abnormal return D) none of the above C) an abnormal return
1. Which of the following have not been considered market anomalies? A) the small-firm effect B) the reversal effect C) the book-to-market effect D) All of the above have been considered market anomalies D) All of the above have been considered market anomalies
1. Which one of the following is not right? a) Studies suggest that large firms on average have higher returns than small firms.b) Firms with high book to market ratio tend to have higher returns.c) Stock price react sluggishly to earning announcement.d) All of the above is right. a) Studies suggest that large firms on average have higher returns than small firms.
1. When stock returns exhibit positive serial correlation, this means that __________ returns tend to follow ___________ returns. A) positive; positive B) positive ; negative C) negative; positive D) None of the above A) positive; positive
1. The term random walk is used in investments to refer to ______________. A) stock price changes that are random but predictable B) stock prices that respond slowly to both old and new information C) stock price changes that are random and unpredictable D) stock prices changes that follow the pattern of past price changes C) stock price changes that are random and unpredictable
1. Assume that a company announces some good news in a particular quarter. In an efficient market one might expect _____________. A) an abnormal price change immediately following the announcement B) an abnormal price increase before the announcement C) an abnormal price decrease after the announcement D) no abnormal price change before or after the announcement A) an abnormal price change immediately following the announcement
1. Which of the following is not a method employed by fundamental analysts? A. Analyzing the Fed’s next interest rate moveB. Charting C. Earnings forecastingD. Estimating the economic growth rate B. Charting
1. Choosing stocks by searching for predictable patterns in stock prices is called ________. A. fundamental analysisB. technical analysisC. index managementD. random walk investing B. technical analysis
1. Most people would readily agree that the stock market is not _________. A. weak form efficientB. semi-strong form efficientC. strong form efficientD. efficient at all C. strong form efficient
1. Proponents of the EMH think technical analysts __________. A. should focus on relative strengthB. should focus on resistance levelsC. should focus on support levelsD. are wasting their time D. are wasting their time
1. Evidence supporting semi-strong form market efficiency suggests that investors should _________________________. A. rely on technical analysis to select securitiesB. rely on fundamental analysis to select securitiesC. use a passive trading strategy such as purchasing an index fund or an ETFD. select securities by throwing darts at the financial pages of the newspaper C. use a passive trading strategy such as purchasing an index fund or an ETF
1. Which one of the following statements is NOT correct? A. Fama and French (1991) and Reinganum (1988) found that firms with low book to market ratios had higher stock returns. B. According to recent research securities markets fully adjust to earnings announcements gradually over timeC. Evidence suggests that corporate insiders do make abnormal returns.D. None of the above A. Fama and French (1991) and Reinganum (1988) found that firms with low book to market ratios had higher stock returns.
1. Even if the markets are efficient, professional portfolio management is still important because it provides investors with _________.I. low cost diversificationII. provides a portfolio with a specified risk levelIII. provides better risk adjusted returns than an index A. I onlyB. I and II onlyC. II and III onlyD. I, II and III B. I and II only
1. Most evidence indicates that U.S. stock markets are _______________________. A. reasonably weak form and semi-strong form efficientB. strong form efficientC. reasonably weak form but not semi- or strong form efficientD. neither weak form, semi- or strong form efficient A. reasonably weak form and semi-strong form efficient
1. Which one of the following statement is true?A. The primary objective of fundamental analysis is to identify well run firmsB. Random price movements indicate that markets are not functioning efficiently C. Market anomaly refers to price behavior that differs from the behavior predicted by the efficient market hypothesis D. None of the above C. Market anomaly refers to price behavior that differs from the behavior predicted by the efficient market hypothesis

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