Question 1

Which of the following observations is most consistent with the EMH?

Accepted Answer

A)  The January effect 
B)  The random walk 
C)  The low P/E effect 
D)  The success of the Value Line Investment Survey 
A)  The January effect 
B)  The random walk 
C)  The low P/E effect 
D)  The success of the Value Line Investment Survey

Question 2

To have strong form market efficiency, semi-strong form efficiency is necessary.

Accepted Answer

A) True 
 B)False

Question 3

Historically, stock returns for companies with low P/E ratios have been better than returns for stocks with high P/E ratios.

Accepted Answer

A) True 
 B)False

Question 4

A test which investigates whether publicly available financial accounting information can be used to generate abnormal returns is a direct test of:

Accepted Answer

A)  weak form market efficiency. 
B)  semi-strong form market efficiency. 
C)  strong form market efficiency. 
D)  mean-variance market efficiency. 
A)  weak form market efficiency. 
B)  semi-strong form market efficiency. 
C)  strong form market efficiency. 
D)  mean-variance market efficiency.

Question 5

Your frugal friend tells you he found $100 in the parking lot and he plans to bet it on the Super Bowl game. What behavior is your friend most likely exhibiting?

Accepted Answer

A)  naïve diversification 
B)  loss aversion 
C)  money allusion 
D)  house-money effect 
A)  naïve diversification 
B)  loss aversion 
C)  money allusion 
D)  house-money effect

Question 6

Behavioral finance integrates sociology with finance. It argues that investors often make systematic mistakes when processing social information about market participants.

Accepted Answer

A) True 
 B)False

Question 7

According to the strong form of the efficient market hypothesis, which investors should expect to earn abnormal returns?

Accepted Answer

A)  Investors with superior analytic ability 
B)  Investors with access to nonpublic information 
C)  Investors with access to public and nonpublic information 
D)  No investors 
A)  Investors with superior analytic ability 
B)  Investors with access to nonpublic information 
C)  Investors with access to public and nonpublic information 
D)  No investors

Question 8

In an efficient market, the expected abnormal return on a security is:

Accepted Answer

A)  equal to zero. 
B)  equal to the risk-free return. 
C)  equal to the security's required return. 
D)  greater than the security's required return. 
A)  equal to zero. 
B)  equal to the risk-free return. 
C)  equal to the security's required return. 
D)  greater than the security's required return.

Question 9

Which of the following is an investment strategy that relies on the "overreaction hypothesis?"

Accepted Answer

A)  Buy and hold 
B)  Value investing 
C)  Momentum 
D)  Contrarian 
A)  Buy and hold 
B)  Value investing 
C)  Momentum 
D)  Contrarian

Question 10

Which of the following is not an investor trading bias?

Accepted Answer

A)  Loss aversion 
B)  Framing 
C)  Overconfidence 
D)  Mean reversion 
A)  Loss aversion 
B)  Framing 
C)  Overconfidence 
D)  Mean reversion

Question 11

Which of the following best illustrates the overconfidence bias?

Accepted Answer

A)  Investors sell winners too early. 
B)  Investors avoid stocks with recent poor performance. 
C)  Investors hold losers too long. 
D)  Investors trade securities too frequently. 
A)  Investors sell winners too early. 
B)  Investors avoid stocks with recent poor performance. 
C)  Investors hold losers too long. 
D)  Investors trade securities too frequently.

Question 12

What is meant by the statement that an efficient market prices securities correctly?

Accepted Answer

A)  The prices reported by the securities exchanges accurately reflect real transactions. 
B)  Riskier securities are priced to yield higher returns. 
C)  The expected return on securities is equal to the risk-free return. 
D)  Both buyers and sellers agree that the prices are fair. 
A)  The prices reported by the securities exchanges accurately reflect real transactions. 
B)  Riskier securities are priced to yield higher returns. 
C)  The expected return on securities is equal to the risk-free return. 
D)  Both buyers and sellers agree that the prices are fair.

Which of the following observations is most consistent with the EMH?

To have strong form market efficiency, semi-strong form efficiency is necessary.

Historically, stock returns for companies with low P/E ratios have been better than returns for stocks with high P/E ratios.

A test which investigates whether publicly available financial accounting information can be used to generate abnormal returns is a direct test of:

Your frugal friend tells you he found $100 in the parking lot and he plans to bet it on the Super Bowl game. What behavior is your friend most likely exhibiting?

Behavioral finance integrates sociology with finance. It argues that investors often make systematic mistakes when processing social information about market participants.

According to the strong form of the efficient market hypothesis, which investors should expect to earn abnormal returns?

In an efficient market, the expected abnormal return on a security is:

Which of the following is an investment strategy that relies on the "overreaction hypothesis?"

Which of the following is not an investor trading bias?

Which of the following best illustrates the overconfidence bias?

What is meant by the statement that an efficient market prices securities correctly?

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risk and Return From Investing

Portfolio Theory

Portfolio Selection and Asset Allocation

Capital Market Theory and Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Economymarket Analysis

Sectorindustry Analysis

Company Analysis

Technical Analysis

Bond Yields and Prices

Bonds: Analysis and Strategy

Options

Futures Contracts

Managing Your Financial Assets

Evaluation of Investment Performance

Filters

Exam 12: Market Efficiency

Which of the following observations is most consistent with the EMH?

To have strong form market efficiency, semi-strong form efficiency is necessary.

Historically, stock returns for companies with low P/E ratios have been better than returns for stocks with high P/E ratios.

A test which investigates whether publicly available financial accounting information can be used to generate abnormal returns is a direct test of:

Your frugal friend tells you he found $100 in the parking lot and he plans to bet it on the Super Bowl game. What behavior is your friend most likely exhibiting?

Behavioral finance integrates sociology with finance. It argues that investors often make systematic mistakes when processing social information about market participants.

According to the strong form of the efficient market hypothesis, which investors should expect to earn abnormal returns?

In an efficient market, the expected abnormal return on a security is:

Which of the following is an investment strategy that relies on the "overreaction hypothesis?"

Which of the following is not an investor trading bias?

Which of the following best illustrates the overconfidence bias?

What is meant by the statement that an efficient market prices securities correctly?

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risk and Return From Investing

Portfolio Theory

Portfolio Selection and Asset Allocation

Capital Market Theory and Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Economymarket Analysis

Sectorindustry Analysis

Company Analysis

Technical Analysis

Bond Yields and Prices

Bonds: Analysis and Strategy

Options

Futures Contracts

Managing Your Financial Assets

Evaluation of Investment Performance

Filters