Question 1

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

Accepted Answer

A) unexploited profit opportunities will never exist as market participants, such as arbitrageurs, ensure that they are instantaneously dissipated. 
B) unexploited profit opportunities will not exist for long, as market participants will act quickly to eliminate them. 
C) every financial market participant must be well informed about securities. 
D) only A and C of the above. 
A) unexploited profit opportunities will never exist as market participants, such as arbitrageurs, ensure that they are instantaneously dissipated. 
B) unexploited profit opportunities will not exist for long, as market participants will act quickly to eliminate them. 
C) every financial market participant must be well informed about securities. 
D) only A and C of the above.

Question 2

The evidence suggests technical analysts are not superior stock pickers.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is an insight from behavioral finance?

Accepted Answer

A) The price of securities fully reflects all available information. 
B) Investor overconfidence leads to high trading volumes. 
C) The optimal forecast of a security's return equals the security's equilibrium return. 
D) Investment advisers cannot consistently beat the market. 
A) The price of securities fully reflects all available information. 
B) Investor overconfidence leads to high trading volumes. 
C) The optimal forecast of a security's return equals the security's equilibrium return. 
D) Investment advisers cannot consistently beat the market.

Question 5

The efficient market hypothesis suggests that allocating your funds in the financial markets on the advice of a financial analyst

Accepted Answer

A) will certainly mean higher returns than if you had made selections by throwing darts at the financial page. 
B) will always mean lower returns than if you had made selections by throwing darts at the financial page. 
C) is not likely to prove superior to a strategy of making selections by throwing darts at the financial page. 
D) is good for the economy. 
A) will certainly mean higher returns than if you had made selections by throwing darts at the financial page. 
B) will always mean lower returns than if you had made selections by throwing darts at the financial page. 
C) is not likely to prove superior to a strategy of making selections by throwing darts at the financial page. 
D) is good for the economy.

Question 6

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 7

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

Accepted Answer

Expectations play a crucial role in unde

Question 8

An important lesson from the Black Monday Crash of 1987 and the tech crash of 2000 is that

Accepted Answer

A) factors other than market fundamentals affect stock prices. 
B) the strong version of the efficient market hypothesis, that stock prices reflect the true fundamental value of securities, is correct. 
C) market psychology has little if any effect on stock prices. 
D) there is no such thing as a rational bubble. 
A) factors other than market fundamentals affect stock prices. 
B) the strong version of the efficient market hypothesis, that stock prices reflect the true fundamental value of securities, is correct. 
C) market psychology has little if any effect on stock prices. 
D) there is no such thing as a rational bubble.

Question 9

Give evidence both for and against market efficiency.

Accepted Answer

The answer of Give evidence both for and against market...

Question 10

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 11

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 12

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 13

According to the January effect, stock prices

Accepted Answer

A) experience an abnormal price rise from December to January. 
B) experience an abnormal price decline from December to January. 
C) follow a random walk during January. 
D) set the pattern for the entire year in January. 
A) experience an abnormal price rise from December to January. 
B) experience an abnormal price decline from December to January. 
C) follow a random walk during January. 
D) set the pattern for the entire year in January.

Question 14

Ivan Boesky, the most successful of the so-called arbs in the 1980s, was able to outperform the market on a consistent basis, indicating that

Accepted Answer

A) securities markets are not efficient. 
B) unexploited profit opportunities were abundant. 
C) investors can outperform the market with inside information. 
D) only B and C of the above. 
A) securities markets are not efficient. 
B) unexploited profit opportunities were abundant. 
C) investors can outperform the market with inside information. 
D) only B and C of the above.

Question 15

What is a rational bubble?

Accepted Answer

The answer of What is a rational bubble?...

Question 16

Technical analysis is a popular technique used to predict stock prices by studying past stock price data and searching for patterns such as trends and regular cycles.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) an unexploited profit opportunity. 
B) a bubble. 
C) a correction. 
D) a mean reversion. 
A) an unexploited profit opportunity. 
B) a bubble. 
C) a correction. 
D) a mean reversion.

Question 18

An arrangement with a broker to borrow stocks from them and then sell it in the market, with the hope that they earn a profit by buying the stock back again after it has fallen in price is called

Accepted Answer

A) behavioral finance. 
B) short sales. 
C) smart money. 
D) random walk. 
A) behavioral finance. 
B) short sales. 
C) smart money. 
D) random walk.

Exam 6: Are Financial Markets Efficient

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

The evidence suggests technical analysts are not superior stock pickers.

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

Which of the following is an insight from behavioral finance?

The efficient market hypothesis suggests that allocating your funds in the financial markets on the advice of a financial analyst

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

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

An important lesson from the Black Monday Crash of 1987 and the tech crash of 2000 is that

Give evidence both for and against market efficiency.

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

Evidence in favor of market efficiency does not include

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

According to the January effect, stock prices

Ivan Boesky, the most successful of the so-called arbs in the 1980s, was able to outperform the market on a consistent basis, indicating that

What is a rational bubble?

Technical analysis is a popular technique used to predict stock prices by studying past stock price data and searching for patterns such as trends and regular cycles.

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

An arrangement with a broker to borrow stocks from them and then sell it in the market, with the hope that they earn a profit by buying the stock back again after it has fallen in price is called

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

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