Question 1

If statistical tests of stock returns over time support the efficient market hypothesis the resulting correlations should be

Accepted Answer

A)  Positive. 
B)  Negative. 
C)  Zero. 
D)  Lagged. 
E)  Skewed. 
A)  Positive. 
B)  Negative. 
C)  Zero. 
D)  Lagged. 
E)  Skewed.

Question 2

Exhibit 6.1
Use the Information Below for the Following Problem(S)
 $\begin{array}{ccccc}
\text { Stock } & \mathbf{R}_{\text {it }} & \mathbf{R}_{\text {mt }} & \mathbf{a}_{\mathbf{i}} & \text { Beta } \
\hline \mathrm{C} & 12 & 10 & 0 & 0.8 \
\mathrm{~F} & 10 & 80 & 0 & 1.1
\end{array}$ 
RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 6.1.What is the abnormal rate of return for Stock C when you consider its systematic risk measure (beta)?

Accepted Answer

A)  4.0% 
B)  1.2% 
C)  2.0% 
D)  -1.05% 
E)  -8.5% 
A)  4.0% 
B)  1.2% 
C)  2.0% 
D)  -1.05% 
E)  -8.5%

Question 3

Superior analysts are encouraged to concentrate their efforts in "middle tier" stocks.This is recommended because

Accepted Answer

A)  it works to minimize taxes for the client. 
B)  only individuals deal in the middle tier stocks. 
C)  prices may not adjust quite as rapidly for middle tier stocks as they do in the top tier; therefore, the chances of temporarily undervalued securities are greater. 
D)  it includes companies too small to be considered by institutions. 
E)  technical analysts never look at "middle tier" stocks. 
A)  it works to minimize taxes for the client. 
B)  only individuals deal in the middle tier stocks. 
C)  prices may not adjust quite as rapidly for middle tier stocks as they do in the top tier; therefore, the chances of temporarily undervalued securities are greater. 
D)  it includes companies too small to be considered by institutions. 
E)  technical analysts never look at "middle tier" stocks.

Question 4

The random walk hypothesis contends that stock prices occur randomly.

Accepted Answer

A) True 
 B)False

Question 5

Researchers have found a positive relationship between default spread and stock returns in the long run because a large default spread implies

Accepted Answer

A)  a high risk premium and higher expected returns. 
B)  a high risk premium and lower expected returns. 
C)  a low risk premium and higher expected returns. 
D)  a low risk premium and lower expected returns. 
E)  none of the above. 
A)  a high risk premium and higher expected returns. 
B)  a high risk premium and lower expected returns. 
C)  a low risk premium and higher expected returns. 
D)  a low risk premium and lower expected returns. 
E)  none of the above.

Question 6

Exhibit 6.4
Use the Information Below for the Following Problem(S)
 $$\begin{array} { c c c c c } 
\text { stack } & \text { Fit } & R \text { mit } & \text { a } _ { \text {i } } & \text { Eeta } \
\hline \text { A } & 10.3 & 12 & 0 & 0.6 \
3 & 94 & 90 & 0 & 1 .2
\end{array}$$ 
R?t = return for stock i during period t
Rmt = return for the aggregate market during period t
-Refer to Exhibit 6.4.What is the abnormal rate of return for Stock A during period t using only the aggregate market return (ignore differential systematic risk)?

Accepted Answer

A)  3.34 
B)  1.75 
C)  -1.75 
D)  -3.70 
E)  -1.70 
A)  3.34 
B)  1.75 
C)  -1.75 
D)  -3.70 
E)  -1.70

Question 7

There is little evidence from studies examining initial public offerings (IPOs)that suggest markets are semistrong form efficient.

Accepted Answer

A) True 
 B)False

Question 8

The weak form of the efficient market hypothesis contends that stock prices fully reflect all public and private information.

Accepted Answer

A) True 
 B)False

Question 9

Confirmation bias refers to the situation where

Accepted Answer

A)  Investors have a propensity to sell winners too soon and hang on to losers too long. 
B)  Investors ignore bad news and overemphasize good news. 
C)  Investors tend to follow the herd. 
D)  Investors put more money into a failure rather than into a success. 
E)  Investors are all noise traders. 
A)  Investors have a propensity to sell winners too soon and hang on to losers too long. 
B)  Investors ignore bad news and overemphasize good news. 
C)  Investors tend to follow the herd. 
D)  Investors put more money into a failure rather than into a success. 
E)  Investors are all noise traders.

Question 10

Exhibit 6.3
Use the Information Below for the Following Problem(S)
 $$\begin{array} { l l c c c } 
\text { Stack } & \mathrm { R } _ { \mathrm { it } } & \mathrm { R } _ { \text {mt } } & \mathrm { a } _ { \mathbf { i } } & \text { Beta } \
\hline \text { Elliat } & 9.9 & 15.0 & 0 & 0.8 \
\text { Hemlick } & 9.1 & 0.0 & 0 & 1 .1
\end{array}$$ 
R?t = return for stock i during period t
Rmt = return for the aggregate market during period t
-Refer to Exhibit 6.3.What is the abnormal rate of return for Elliot during period t using only the aggregate market return (ignore differential systematic risk)?

Accepted Answer

A)  1.50 
B)  1.10 
C)  -1.50 
D)  -5.10 
E)  -8.00 
A)  1.50 
B)  1.10 
C)  -1.50 
D)  -5.10 
E)  -8.00

Question 11

The weak-form efficient market hypothesis assumes all publicly available information is reflected in current stock prices.

Accepted Answer

A) True 
 B)False

Question 12

Tests have shown that if small filters are used in simulating trading rules,these trading rules have produced above average returns after transactions costs are factored in.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 6.3
Use the Information Below for the Following Problem(S)
 $$\begin{array} { l l c c c } 
\text { Stack } & \mathrm { R } _ { \mathrm { it } } & \mathrm { R } _ { \text {mt } } & \mathrm { a } _ { \mathbf { i } } & \text { Beta } \
\hline \text { Elliat } & 9.9 & 15.0 & 0 & 0.8 \
\text { Hemlick } & 9.1 & 0.0 & 0 & 1 .1
\end{array}$$ 
R?t = return for stock i during period t
Rmt = return for the aggregate market during period t
-Refer to Exhibit 6.3.What is the abnormal rate of return for Elliot when you consider its systematic risk measure (beta)?

Accepted Answer

A)  -2.10% 
B)  -2.00% 
C)  5.20% 
D)  14.10% 
E)  None of the above 
A)  -2.10% 
B)  -2.00% 
C)  5.20% 
D)  14.10% 
E)  None of the above

Question 14

Autocorrelation and runs tests are used to test the

Accepted Answer

A)  Weak-form efficient market hypothesis (EMH). 
B)  Semistrong-form efficient market hypothesis (EMH). 
C)  Strong-form efficient market hypothesis (EMH). 
D)  Both a and b 
E)  All of the above. 
A)  Weak-form efficient market hypothesis (EMH). 
B)  Semistrong-form efficient market hypothesis (EMH). 
C)  Strong-form efficient market hypothesis (EMH). 
D)  Both a and b 
E)  All of the above.

If statistical tests of stock returns over time support the efficient market hypothesis the resulting correlations should be

Superior analysts are encouraged to concentrate their efforts in "middle tier" stocks.This is recommended because

The random walk hypothesis contends that stock prices occur randomly.

Researchers have found a positive relationship between default spread and stock returns in the long run because a large default spread implies

There is little evidence from studies examining initial public offerings (IPOs)that suggest markets are semistrong form efficient.

The weak form of the efficient market hypothesis contends that stock prices fully reflect all public and private information.

Confirmation bias refers to the situation where

The weak-form efficient market hypothesis assumes all publicly available information is reflected in current stock prices.

Tests have shown that if small filters are used in simulating trading rules,these trading rules have produced above average returns after transactions costs are factored in.

Autocorrelation and runs tests are used to test the

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

Security-Market Indexes

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

Filters

Exam 6: Efficient Capital Markets

If statistical tests of stock returns over time support the efficient market hypothesis the resulting correlations should be

Superior analysts are encouraged to concentrate their efforts in "middle tier" stocks.This is recommended because

The random walk hypothesis contends that stock prices occur randomly.

Researchers have found a positive relationship between default spread and stock returns in the long run because a large default spread implies

There is little evidence from studies examining initial public offerings (IPOs)that suggest markets are semistrong form efficient.

The weak form of the efficient market hypothesis contends that stock prices fully reflect all public and private information.

Confirmation bias refers to the situation where

The weak-form efficient market hypothesis assumes all publicly available information is reflected in current stock prices.

Tests have shown that if small filters are used in simulating trading rules,these trading rules have produced above average returns after transactions costs are factored in.

Autocorrelation and runs tests are used to test the

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

Security-Market Indexes

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

Filters