Question 1

How do loss aversion,overconfidence of investors,and social contagion affect market efficiency?

Accepted Answer

Loss aversion, overconfidence of investo

Question 2

If the optimal forecast of the return on a security exceeds the equilibrium return,then

Accepted Answer

A)  the market is inefficient. 
B)  an unexploited profit opportunity exists. 
C)  the market is in equilibrium. 
D)  only A and B of the above are true. 
E)  only B and C of the above are true. 
A)  the market is inefficient. 
B)  an unexploited profit opportunity exists. 
C)  the market is in equilibrium. 
D)  only A and B of the above are true. 
E)  only B and C of the above are true.

Question 3

Sometimes one observes that the price of a company's stock falls after the announcement of favorable earnings.This phenomenon is

Accepted Answer

A)  clearly inconsistent with the efficient market hypothesis. 
B)  consistent with the efficient market hypothesis if the earnings were not as high as anticipated. 
C)  consistent with the efficient market hypothesis if the earnings were not as low as anticipated. 
D)  the result of none of the above. 
A)  clearly inconsistent with the efficient market hypothesis. 
B)  consistent with the efficient market hypothesis if the earnings were not as high as anticipated. 
C)  consistent with the efficient market hypothesis if the earnings were not as low as anticipated. 
D)  the result of none of the above.

Question 4

Mean reversion refers to the observation that

Accepted Answer

A)  stock prices overact to news announcements. 
B)  stocks prices are more volatile than fluctuations in their fundamental value would predict. 
C)  stocks with low returns are likely to have high returns in the future. 
D)  stocks with low returns are likely to have even lower returns in the future. 
A)  stock prices overact to news announcements. 
B)  stocks prices are more volatile than fluctuations in their fundamental value would predict. 
C)  stocks with low returns are likely to have high returns in the future. 
D)  stocks with low returns are likely to have even lower returns in the future.

Question 5

A situation in which the price of an asset differs from its fundamental market value

Accepted Answer

A)  indicates that unexploited profit opportunities exist. 
B)  indicates that unexploited profit opportunities do not exist. 
C)  need not indicate that unexploited profit opportunities exist. 
D)  indicates that the efficient market hypothesis is fundamentally flawed. 
A)  indicates that unexploited profit opportunities exist. 
B)  indicates that unexploited profit opportunities do not exist. 
C)  need not indicate that unexploited profit opportunities exist. 
D)  indicates that the efficient market hypothesis is fundamentally flawed.

Question 6

Evidence in favor of market efficiency includes

Accepted Answer

A)  performance of investment analysts and mutual funds. 
B)  whether stock prices reflect publicly available information. 
C)  the random-walk behavior of stock prices. 
D)  all of the above. 
A)  performance of investment analysts and mutual funds. 
B)  whether stock prices reflect publicly available information. 
C)  the random-walk behavior of stock prices. 
D)  all of the above.

Question 7

Evidence in favor of market efficiency does not include

Accepted Answer

A)  random-walk behavior. 
B)  technical analysis. 
C)  performance of investment analysts and mutual funds. 
D)  the January effect. 
A)  random-walk behavior. 
B)  technical analysis. 
C)  performance of investment analysts and mutual funds. 
D)  the January effect.

Question 8

The evidence suggests technical analysts are not superior stock pickers.

Accepted Answer

A) True 
 B)False

Question 9

How is it possible that a firm can announce a record-breaking loss,yet its stock price rises when the announcement is made?

Accepted Answer

The announcement effect describes the im

Question 10

Another way to state the efficient market condition is that in an efficient market,

Accepted Answer

A)  unexploited profit opportunities will be quickly eliminated. 
B)  unexploited profit opportunities will never exist. 
C)  arbitrageurs guarantee that unexploited profit opportunities never exist. 
D)  both A and C of the above occur. 
A)  unexploited profit opportunities will be quickly eliminated. 
B)  unexploited profit opportunities will never exist. 
C)  arbitrageurs guarantee that unexploited profit opportunities never exist. 
D)  both A and C of the above occur.

Question 11

To say that stock prices follow a "random walk" is to argue that

Accepted Answer

A)  stock prices rise, then fall. 
B)  stock prices rise, then fall in a predictable fashion. 
C)  stock prices tend to follow trends. 
D)  stock prices are, for all practical purposes, unpredictable. 
A)  stock prices rise, then fall. 
B)  stock prices rise, then fall in a predictable fashion. 
C)  stock prices tend to follow trends. 
D)  stock prices are, for all practical purposes, unpredictable.

Question 12

If the security markets are truly efficient,there is no need to pay for help selecting securities.

Accepted Answer

A) True 
 B)False

Question 13

Although the verdict is not yet in,the available evidence indicates that,for many purposes,the efficient market hypothesis is

Accepted Answer

A)  a good starting point for analyzing expectations. 
B)  not a good starting point for analyzing expectations. 
C)  too general to be a useful tool for analyzing expectations. 
D)  none of the above. 
A)  a good starting point for analyzing expectations. 
B)  not a good starting point for analyzing expectations. 
C)  too general to be a useful tool for analyzing expectations. 
D)  none of the above.

Question 14

To say that stock prices follow a "random walk" is to argue that

Accepted Answer

A)  stock prices rise, then fall, then rise again. 
B)  stock prices rise, then fall in a predictable fashion. 
C)  stock prices tend to follow trends. 
D)  stock prices cannot be predicted based on past trends. 
A)  stock prices rise, then fall, then rise again. 
B)  stock prices rise, then fall in a predictable fashion. 
C)  stock prices tend to follow trends. 
D)  stock prices cannot be predicted based on past trends.

Question 15

When a market bubble occurs,________.

Accepted Answer

A)  prices of assets rise well above their fundamental values 
B)  a "thin layer" of trading masks true market movements 
C)  market fundamentals and actual security prices converge 
D)  prices of assets fluctuate rapidly above and below market fundamentals 
A)  prices of assets rise well above their fundamental values 
B)  a "thin layer" of trading masks true market movements 
C)  market fundamentals and actual security prices converge 
D)  prices of assets fluctuate rapidly above and below market fundamentals

Question 16

Evidence that a mutual fund has performed extraordinarily well in the past contradicts the efficient market hypothesis.

Accepted Answer

A) True 
 B)False

Question 17

The elimination of a riskless profit opportunity in a market is called

Accepted Answer

A)  the efficient market hypothesis. 
B)  random walk. 
C)  arbitrage. 
D)  market fundamentals. 
A)  the efficient market hypothesis. 
B)  random walk. 
C)  arbitrage. 
D)  market fundamentals.

Question 18

The efficient markets hypothesis is weakened by evidence that

Accepted Answer

A)  stock prices tend to follow a random walk. 
B)  stock prices are more volatile than fluctuations in their fundamental values can explain. 
C)  technical analysis does not outperform the overall market. 
D)  an investment adviser's past success or failure at picking stocks does not predict his or her future performance. 
A)  stock prices tend to follow a random walk. 
B)  stock prices are more volatile than fluctuations in their fundamental values can explain. 
C)  technical analysis does not outperform the overall market. 
D)  an investment adviser's past success or failure at picking stocks does not predict his or her future performance.

Question 19

Which of the following types of information will most likely enable the exploitation of a profit opportunity?

Accepted Answer

A)  Financial analysts' published recommendations 
B)  Technical analysis 
C)  Hot tips from a stockbroker 
D)  Insider information 
A)  Financial analysts' published recommendations 
B)  Technical analysis 
C)  Hot tips from a stockbroker 
D)  Insider information

Question 20

The advantage of a "buy and hold strategy" is that

Accepted Answer

A)  net profits will tend to be higher because there will be fewer brokerage commissions. 
B)  losses will eventually be eliminated. 
C)  the longer a stock is held, the higher its price will be. 
D)  only B and C of the above are true. 
A)  net profits will tend to be higher because there will be fewer brokerage commissions. 
B)  losses will eventually be eliminated. 
C)  the longer a stock is held, the higher its price will be. 
D)  only B and C of the above are true.

Exam 6: Are Financial Markets Efficient?

How do loss aversion,overconfidence of investors,and social contagion affect market efficiency?

If the optimal forecast of the return on a security exceeds the equilibrium return,then

Sometimes one observes that the price of a company's stock falls after the announcement of favorable earnings.This phenomenon is

Mean reversion refers to the observation that

A situation in which the price of an asset differs from its fundamental market value

Evidence in favor of market efficiency includes

Evidence in favor of market efficiency does not include

The evidence suggests technical analysts are not superior stock pickers.

How is it possible that a firm can announce a record-breaking loss,yet its stock price rises when the announcement is made?

Another way to state the efficient market condition is that in an efficient market,

To say that stock prices follow a "random walk" is to argue that

If the security markets are truly efficient,there is no need to pay for help selecting securities.

Although the verdict is not yet in,the available evidence indicates that,for many purposes,the efficient market hypothesis is

To say that stock prices follow a "random walk" is to argue that

When a market bubble occurs,________.

Evidence that a mutual fund has performed extraordinarily well in the past contradicts the efficient market hypothesis.

The elimination of a riskless profit opportunity in a market is called

The efficient markets hypothesis is weakened by evidence that

Which of the following types of information will most likely enable the exploitation of a profit opportunity?

The advantage of a "buy and hold strategy" is that

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

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