Question 1

Explain what the market reaction will be in an efficient market if a firm announces a fully anticipated filing for bankruptcy.

Accepted Answer

In an efficient market, all the informat

Question 2

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)  None of the above 
A)  Financial analysts' published recommendations 
B)  Technical analysis 
C)  Hot tips from a stockbroker 
D)  None of the above

Question 3

The efficient market hypothesis applies to

Accepted Answer

A)  both the stock market and the foreign exchange market. 
B)  the stock market but not the foreign exchange market. 
C)  the foreign exchange market but not the stock market. 
D)  neither the stock market nor the foreign exchange market. 
A)  both the stock market and the foreign exchange market. 
B)  the stock market but not the foreign exchange market. 
C)  the foreign exchange market but not the stock market. 
D)  neither the stock market nor the foreign exchange market.

Question 4

Studies of mutual fund performance indicate that mutual funds that outperformed the market in one time period

Accepted Answer

A)  usually beat the market in the next time period. 
B)  usually beat the market in the next two subsequent time periods. 
C)  usually beat the market in the next three subsequent time periods. 
D)  usually do not beat the market in the next time period. 
A)  usually beat the market in the next time period. 
B)  usually beat the market in the next two subsequent time periods. 
C)  usually beat the market in the next three subsequent time periods. 
D)  usually do not beat the market in the next time period.

Question 5

According to the strong view of the efficient markets hypothesis,security prices reflect ________ and so financial markets are efficient.

Accepted Answer

A)  market fundamentals 
B)  rational expectations 
C)  momentum effects 
D)  current market trends 
A)  market fundamentals 
B)  rational expectations 
C)  momentum effects 
D)  current market trends

Question 6

The efficient market hypothesis suggests that

Accepted Answer

A)  investors should purchase no-load mutual funds, which have low management fees. 
B)  investors can use the advice of technical analysts to outperform the market. 
C)  investors let too many unexploited profit opportunities go by if they adopt a "buy and hold" strategy. 
D)  only A and B of the above are sensible strategies. 
A)  investors should purchase no-load mutual funds, which have low management fees. 
B)  investors can use the advice of technical analysts to outperform the market. 
C)  investors let too many unexploited profit opportunities go by if they adopt a "buy and hold" strategy. 
D)  only A and B of the above are sensible strategies.

Question 7

Evidence that stock prices sometimes fall when a firm announces good news contradicts the efficient market hypothesis.

Accepted Answer

A) True 
 B)False

Question 8

Rules used to predict movements in stock prices based on past patterns are,according to the efficient markets theory,

Accepted Answer

A)  a waste of time. 
B)  profitably employed by all financial analysts. 
C)  the most efficient rules to employ. 
D)  consistent with the random walk hypothesis. 
A)  a waste of time. 
B)  profitably employed by all financial analysts. 
C)  the most efficient rules to employ. 
D)  consistent with the random walk hypothesis.

Question 9

Important implications of the efficient market hypothesis include which of the following?

Accepted Answer

A)  Future changes in stock prices should, for all practical purposes, be unpredictable. 
B)  Stock prices will respond to announcements only when the information in these announcements is new. 
C)  Sometimes a stock price declines when good news is announced. 
D)  All of the above. 
E)  Only A and B of the above. 
A)  Future changes in stock prices should, for all practical purposes, be unpredictable. 
B)  Stock prices will respond to announcements only when the information in these announcements is new. 
C)  Sometimes a stock price declines when good news is announced. 
D)  All of the above. 
E)  Only A and B of the above.

Question 10

Having performed well in the past indicates that an investment adviser or a mutual fund will perform well in the future.

Accepted Answer

A) True 
 B)False

Question 11

The efficient market hypothesis does not have to imply that financial markets are efficient.

Accepted Answer

A) True 
 B)False

Question 12

Tests used to rate the performance of rules developed in technical analysis conclude that

Accepted Answer

A)  technical analysis outperforms the overall market. 
B)  technical analysis far outperforms the overall market, suggesting that stockbrokers provide valuable services. 
C)  technical analysis does not outperform the overall market. 
D)  technical analysis does not outperform the overall market, suggesting that stockbrokers do not provide services of any value. 
A)  technical analysis outperforms the overall market. 
B)  technical analysis far outperforms the overall market, suggesting that stockbrokers provide valuable services. 
C)  technical analysis does not outperform the overall market. 
D)  technical analysis does not outperform the overall market, suggesting that stockbrokers do not provide services of any value.

Question 13

Why are expectations important in understanding how financial instruments are valued?

Accepted Answer

Expectations play a crucial role in unde

Question 14

If the markets are efficient,the optimal investment strategy will be to buy and hold so as to minimize transaction costs.

Accepted Answer

A) True 
 B)False

Question 15

The efficient market hypothesis suggests that

Accepted Answer

A)  investors should not try to outguess the market by constantly buying and selling securities. 
B)  investors do better on average if they adopt a "buy and hold" strategy. 
C)  buying into a mutual fund is a sensible strategy for a small investor. 
D)  all of the above are sensible strategies. 
E)  only A and B of the above are sensible strategies. 
A)  investors should not try to outguess the market by constantly buying and selling securities. 
B)  investors do better on average if they adopt a "buy and hold" strategy. 
C)  buying into a mutual fund is a sensible strategy for a small investor. 
D)  all of the above are sensible strategies. 
E)  only A and B of the above are sensible strategies.

Question 16

According to the efficient market hypothesis

Accepted Answer

A)  one cannot expect to earn an abnormally high return by purchasing a security. 
B)  information in newspapers and in the published reports of financial analysts is already reflected in market prices. 
C)  unexploited profit opportunities abound, thereby explaining why so many people get rich by trading securities. 
D)  all of the above are true. 
E)  only A and B of the above are true. 
A)  one cannot expect to earn an abnormally high return by purchasing a security. 
B)  information in newspapers and in the published reports of financial analysts is already reflected in market prices. 
C)  unexploited profit opportunities abound, thereby explaining why so many people get rich by trading securities. 
D)  all of the above are true. 
E)  only A and B of the above are true.

Question 17

Which of the following is empirical evidence indicating that the efficient market hypothesis may not always be generally applicable?

Accepted Answer

A)  Small-firm effect 
B)  January effect 
C)  Market overreaction 
D)  All of the above 
A)  Small-firm effect 
B)  January effect 
C)  Market overreaction 
D)  All of the above

Question 18

Evidence against market efficiency does not include

Accepted Answer

A)  the small-firm effect. 
B)  technical analysis. 
C)  excessive volatility. 
D)  mean reversion. 
A)  the small-firm effect. 
B)  technical analysis. 
C)  excessive volatility. 
D)  mean reversion.

Question 19

In an efficient market,abnormal returns are not possible,even using inside information.

Accepted Answer

A) True 
 B)False

Question 20

It is probably a good use of an investor's time to watch as many shows featuring technical analysts as possible.

Accepted Answer

A) True 
 B)False

Exam 6: Are Financial Markets Efficient?

Explain what the market reaction will be in an efficient market if a firm announces a fully anticipated filing for bankruptcy.

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

The efficient market hypothesis applies to

Studies of mutual fund performance indicate that mutual funds that outperformed the market in one time period

According to the strong view of the efficient markets hypothesis,security prices reflect ________ and so financial markets are efficient.

The efficient market hypothesis suggests that

Evidence that stock prices sometimes fall when a firm announces good news contradicts the efficient market hypothesis.

Rules used to predict movements in stock prices based on past patterns are,according to the efficient markets theory,

Important implications of the efficient market hypothesis include which of the following?

Having performed well in the past indicates that an investment adviser or a mutual fund will perform well in the future.

The efficient market hypothesis does not have to imply that financial markets are efficient.

Tests used to rate the performance of rules developed in technical analysis conclude that

Why are expectations important in understanding how financial instruments are valued?

If the markets are efficient,the optimal investment strategy will be to buy and hold so as to minimize transaction costs.

The efficient market hypothesis suggests that

According to the efficient market hypothesis

Which of the following is empirical evidence indicating that the efficient market hypothesis may not always be generally applicable?

Evidence against market efficiency does not include

In an efficient market,abnormal returns are not possible,even using inside information.

It is probably a good use of an investor's time to watch as many shows featuring technical analysts as possible.

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

Filters