Question 1

According to technical analysts, a shift in market fundamentals will ________.

Accepted Answer

A) be reflected in share prices immediately 
B) lead to a gradual price change that can be recognised as a trend 
C) lead to high volatility in share market prices 
D) leave prices unchanged 
A) be reflected in share prices immediately 
B) lead to a gradual price change that can be recognised as a trend 
C) lead to high volatility in share market prices 
D) leave prices unchanged

Question 2

Investors gravitate towards the latest hot share even though it has never paid a dividend. Even though net income is projected to fall over the current and next several years, the price of the share continues to rise. What behavioural concept may explain this price pattern?

Accepted Answer

A) Overconfidence 
B) Loss aversion 
C) Mental accounting 
D) Calendar bias 
A) Overconfidence 
B) Loss aversion 
C) Mental accounting 
D) Calendar bias

Question 3

An investor holds a very conservative portfolio invested for retirement but she takes some extra cash she earned from her year-end bonus and buys gold futures. She appears to be engaging in ________.

Accepted Answer

A) overconfidence 
B) representativeness 
C) forecast errors 
D) mental accounting 
A) overconfidence 
B) representativeness 
C) forecast errors 
D) mental accounting

Question 4

An investor has her money segregated into checking, savings and investments. The allocation between each category is subjective, yet the investor spends freely from the checking account and not the others. This behaviour can be explained as ________.

Accepted Answer

A) loss aversion 
B) mental accounting 
C) overreaction 
D) winner's curse 
A) loss aversion 
B) mental accounting 
C) overreaction 
D) winner's curse

Question 5

A technical analyst is most likely to be affiliated with which investment philosophy?

Accepted Answer

A) Active management 
B) Buy and hold 
C) Passive investment 
D) Index funds 
A) Active management 
B) Buy and hold 
C) Passive investment 
D) Index funds

Question 6

Your two best friends each tell you about a person they know who successfully started a small business. That's it, you decide, if they can do it so can you. This is an example of ________.

Accepted Answer

A) mental accounting 
B) framing bias 
C) conservatism 
D) representativeness bias 
A) mental accounting 
B) framing bias 
C) conservatism 
D) representativeness bias

Question 7

In an efficient market and for an investor that believes in a passive approach to investing, what is the primary duty of a portfolio manager?

Accepted Answer

A) Accounting for results 
B) Diversification 
C) Identifying undervalued shares 
D) No need for a portfolio manager 
A) Accounting for results 
B) Diversification 
C) Identifying undervalued shares 
D) No need for a portfolio manager

Question 8

Share prices that are stable over time ________.

Accepted Answer

A) indicate that prices are useful indicators of true economic value 
B) indicate that the market is not incorporating new information into current share prices 
C) ensure that an economy allocates its resources efficiently 
D) indicates that returns follow a random walk process 
A) indicate that prices are useful indicators of true economic value 
B) indicate that the market is not incorporating new information into current share prices 
C) ensure that an economy allocates its resources efficiently 
D) indicates that returns follow a random walk process

Question 9

Which of the following is not a topic related to the debate over market efficiency?

Accepted Answer

A) IPO results 
B) Lucky event issue 
C) Magnitude issue 
D) Selection bias 
A) IPO results 
B) Lucky event issue 
C) Magnitude issue 
D) Selection bias

Question 10

Which of the following is not a concept related to explaining abnormal excess share returns?

Accepted Answer

A) January effect 
B) Neglected firm effect 
C) P/E effect 
D) Preferred share effect 
A) January effect 
B) Neglected firm effect 
C) P/E effect 
D) Preferred share effect

Question 11

Which one of the following best describes fundamental risk?

Accepted Answer

A) A share is overpriced but your fund does not allow you to engage in short sales. 
B) Your models indicate a share is mispriced but you are not sure if this is a real profit opportunity or a model input error. 
C) You buy a share that you believe is underpriced and the underpricing persists for a long time, hurting your short term results. 
D) A share is trading in two different markets at two different prices. 
A) A share is overpriced but your fund does not allow you to engage in short sales. 
B) Your models indicate a share is mispriced but you are not sure if this is a real profit opportunity or a model input error. 
C) You buy a share that you believe is underpriced and the underpricing persists for a long time, hurting your short term results. 
D) A share is trading in two different markets at two different prices.

Question 12

Random price movements indicate ________.

Accepted Answer

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 
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

Question 13

If the daily returns on the share market are normally distributed with a mean of 0.05% and a standard deviation of 1.00%, the probability that the share market would have a return of -23.00% or worse on one particular day (as it did on Black Monday) is approximately ________.

Accepted Answer

A) 0.0% 
B) 0.1% 
C) 1.0% 
D) 10.0% 
A) 0.0% 
B) 0.1% 
C) 1.0% 
D) 10.0%

Question 14

Most people would readily agree that the share market is not ________.

Accepted Answer

A) weak form efficient 
B) semi-strong form efficient 
C) strong form efficient 
D) efficient at all 
A) weak form efficient 
B) semi-strong form efficient 
C) strong form efficient 
D) efficient at all

Question 15

According to recent research securities markets fully adjust to earnings announcements ________.

Accepted Answer

A) instantly 
B) in 1 day 
C) in 1 week 
D) gradually over time 
A) instantly 
B) in 1 day 
C) in 1 week 
D) gradually over time

Question 16

The semi-strong form of the EMH states that ________ must be reflected in the current share price.

Accepted Answer

A) all security price and volume data 
B) all publicly available information 
C) all information including inside information 
D) all costless information 
A) all security price and volume data 
B) all publicly available information 
C) all information including inside information 
D) all costless information

Question 17

DeBondt and Thaler (1985) found that the poorest performing shares in one time period experienced ________ performance in the following period and the best performing shares in one time period experienced ________ performance in the following time period.

Accepted Answer

A) good, good 
B) good, poor 
C) poor, good 
D) poor, poor 
A) good, good 
B) good, poor 
C) poor, good 
D) poor, poor

Question 18

Studies show that the bid-ask spread for the least liquid shares may be as high as ________.

Accepted Answer

A) 3% 
B) 5% 
C) 9% 
D) 12% 
A) 3% 
B) 5% 
C) 9% 
D) 12%

Question 19

Technical analysis focuses on ________.

Accepted Answer

A) finding opportunities for risk-free investing 
B) finding repeating trends and patterns in prices 
C) changing prospects for earnings growth of particular firms or industries 
D) forecasting technical regulatory changes 
A) finding opportunities for risk-free investing 
B) finding repeating trends and patterns in prices 
C) changing prospects for earnings growth of particular firms or industries 
D) forecasting technical regulatory changes

Question 20

Value shares may provide investors with better returns than growth shares if ________.
I. value shares are out of favor with investors
II. prices of growth shares include premiums for overly optimistic growth levels
III. value shares are likely to generate positive earnings surprises.

Accepted Answer

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

According to technical analysts, a shift in market fundamentals will ________.

Investors gravitate towards the latest hot share even though it has never paid a dividend. Even though net income is projected to fall over the current and next several years, the price of the share continues to rise. What behavioural concept may explain this price pattern?

An investor holds a very conservative portfolio invested for retirement but she takes some extra cash she earned from her year-end bonus and buys gold futures. She appears to be engaging in ________.

An investor has her money segregated into checking, savings and investments. The allocation between each category is subjective, yet the investor spends freely from the checking account and not the others. This behaviour can be explained as ________.

A technical analyst is most likely to be affiliated with which investment philosophy?

Your two best friends each tell you about a person they know who successfully started a small business. That's it, you decide, if they can do it so can you. This is an example of ________.

In an efficient market and for an investor that believes in a passive approach to investing, what is the primary duty of a portfolio manager?

Share prices that are stable over time ________.

Which of the following is not a topic related to the debate over market efficiency?

Which of the following is not a concept related to explaining abnormal excess share returns?

Which one of the following best describes fundamental risk?

Random price movements indicate ________.

If the daily returns on the share market are normally distributed with a mean of 0.05% and a standard deviation of 1.00%, the probability that the share market would have a return of -23.00% or worse on one particular day (as it did on Black Monday) is approximately ________.

Most people would readily agree that the share market is not ________.

According to recent research securities markets fully adjust to earnings announcements ________.

The semi-strong form of the EMH states that ________ must be reflected in the current share price.

DeBondt and Thaler (1985) found that the poorest performing shares in one time period experienced performance in the following period and the best performing shares in one time period experienced performance in the following time period.

Studies show that the bid-ask spread for the least liquid shares may be as high as ________.

Technical analysis focuses on ________.

Value shares may provide investors with better returns than growth shares if ________. I. value shares are out of favor with investors II. prices of growth shares include premiums for overly optimistic growth levels III. value shares are likely to generate positive earnings surprises.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Managed Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Pricing and Arbitrage Pricing Theory

Bond Prices and Yields

Managing Bond Portfolios

Equity Valuation

Macroeconomic and Industry Analysis

Financial Statement Analysis

Options and Risk Management

Futures and Risk Management

Investors and the Investment Process

Hedge Funds

Portfolio Performance Evaluation

Filters

Exam 8: The Efficient Market Hypothesis and Behavioral Finance

According to technical analysts, a shift in market fundamentals will ________.

Investors gravitate towards the latest hot share even though it has never paid a dividend. Even though net income is projected to fall over the current and next several years, the price of the share continues to rise. What behavioural concept may explain this price pattern?

An investor holds a very conservative portfolio invested for retirement but she takes some extra cash she earned from her year-end bonus and buys gold futures. She appears to be engaging in ________.

An investor has her money segregated into checking, savings and investments. The allocation between each category is subjective, yet the investor spends freely from the checking account and not the others. This behaviour can be explained as ________.

A technical analyst is most likely to be affiliated with which investment philosophy?

Your two best friends each tell you about a person they know who successfully started a small business. That's it, you decide, if they can do it so can you. This is an example of ________.

In an efficient market and for an investor that believes in a passive approach to investing, what is the primary duty of a portfolio manager?

Share prices that are stable over time ________.

Which of the following is not a topic related to the debate over market efficiency?

Which of the following is not a concept related to explaining abnormal excess share returns?

Which one of the following best describes fundamental risk?

Random price movements indicate ________.

If the daily returns on the share market are normally distributed with a mean of 0.05% and a standard deviation of 1.00%, the probability that the share market would have a return of -23.00% or worse on one particular day (as it did on Black Monday) is approximately ________.

Most people would readily agree that the share market is not ________.

According to recent research securities markets fully adjust to earnings announcements ________.

The semi-strong form of the EMH states that ________ must be reflected in the current share price.

DeBondt and Thaler (1985) found that the poorest performing shares in one time period experienced ________ performance in the following period and the best performing shares in one time period experienced ________ performance in the following time period.

Studies show that the bid-ask spread for the least liquid shares may be as high as ________.

Technical analysis focuses on ________.

Value shares may provide investors with better returns than growth shares if ________. I. value shares are out of favor with investors II. prices of growth shares include premiums for overly optimistic growth levels III. value shares are likely to generate positive earnings surprises.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Managed Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Pricing and Arbitrage Pricing Theory

Bond Prices and Yields

Managing Bond Portfolios

Equity Valuation

Macroeconomic and Industry Analysis

Financial Statement Analysis

Options and Risk Management

Futures and Risk Management

Investors and the Investment Process

Hedge Funds

Portfolio Performance Evaluation

Filters

DeBondt and Thaler (1985) found that the poorest performing shares in one time period experienced performance in the following period and the best performing shares in one time period experienced performance in the following time period.