Question 1

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 2

Technical analysts look at historical prices for information to project future prices.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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 5

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 6

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 7

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 8

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 9

An investor gains from short selling by ________ and then later ________.

Accepted Answer

A) buying a stock; selling it at a higher price 
B) selling a stock; buying it back at a lower price 
C) buying a stock; selling it at a lower price 
D) selling a stock; buying it back at a higher price 
A) buying a stock; selling it at a higher price 
B) selling a stock; buying it back at a lower price 
C) buying a stock; selling it at a lower price 
D) selling a stock; buying it back at a higher price

Question 10

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 11

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 12

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 13

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 14

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 15

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

Accepted Answer

The answer of Explain what the market reaction will be...

Question 16

The efficient market hypothesis

Accepted Answer

A) is based on the assumption that prices of securities fully reflect all available information. 
B) holds that the expected return on a security equals the equilibrium return. 
C) both A and B. 
D) neither A nor B. 
A) is based on the assumption that prices of securities fully reflect all available information. 
B) holds that the expected return on a security equals the equilibrium return. 
C) both A and B. 
D) neither A nor B.

Question 17

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

Accepted Answer

Loss aversion, overconfidence of investo

Question 18

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 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 6: Are Financial Markets Efficient

The efficient market hypothesis applies to

Technical analysts look at historical prices for information to project future prices.

The efficient market hypothesis suggests that

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

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

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

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

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

An investor gains from short selling by ________ and then later ________.

Evidence against market efficiency does not include

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

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

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

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

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

The efficient market hypothesis

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

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.

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

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 Why Are They so Damaging to the Economy

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

Savings Associations and Credit Unions

Finance Companies

Filters

An investor gains from short selling by and then later .