Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 5-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{lcccc}
\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\text {mt }} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \
\hline \text { ABC } & 11.5 & 13.0 & 0 & 0.7 \
\text { XYZ } & 9.0 & 7.0 & 0 & 1.1
\end{array}$ 
RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5-2. What is the abnormal rate of return for Stock ABC when you consider its systematic risk measure (beta)?

Accepted Answer

A)  2.4% 
B)  1.5% 
C)  -1.5% 
D)  2.0% 
E)  -3.2% 
A)  2.4% 
B)  1.5% 
C)  -1.5% 
D)  2.0% 
E)  -3.2%

Question 3

Exhibit 5-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}
\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\text {mt }} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \
\hline \mathrm{A} & 10.3 & 12 & 0 & 0.6 \
\text { B } & 9.4 & 9.0 & 0 & 1.2
\end{array}$ 
RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5-4. What is the abnormal rate of return for Stock B during period t using only the aggregate market return (ignore differential systematic risk)?

Accepted Answer

A)  0.40 
B)  1.40 
C)  -1.10 
D)  -4.40 
E)  -6.40 
A)  0.40 
B)  1.40 
C)  -1.10 
D)  -4.40 
E)  -6.40

Question 4

Which of the following would be inconsistent with an efficient market?

Accepted Answer

A)  Information arrives randomly and independently. 
B)  Stock prices adjust rapidly to new information. 
C)  Price changes are independent. 
D)  Price changes are random. 
E)  Price adjustments are biased. 
A)  Information arrives randomly and independently. 
B)  Stock prices adjust rapidly to new information. 
C)  Price changes are independent. 
D)  Price changes are random. 
E)  Price adjustments are biased.

Question 5

Banz and Reinganum found that small firms consistently outperformed large firms. This anomaly is referred to as the

Accepted Answer

A)  Large firm effect. 
B)  Size effect. 
C)  Small firm effect. 
D)  PIE effect. 
E)  None of the above. 
A)  Large firm effect. 
B)  Size effect. 
C)  Small firm effect. 
D)  PIE effect. 
E)  None of the above.

Question 6

Fusion investing is the integration of the following elements of investment valuation:

Accepted Answer

A)  Fundamental value and investor sentiment. 
B)  Fads and fashions. 
C)  Technical analysis and investor sentiment. 
D)  Historical prices and returns. 
E)  Transaction costs and fundamental value. 
A)  Fundamental value and investor sentiment. 
B)  Fads and fashions. 
C)  Technical analysis and investor sentiment. 
D)  Historical prices and returns. 
E)  Transaction costs and fundamental value.

Question 7

The random walk hypothesis contends that stock prices occur randomly.

Accepted Answer

A) True 
 B)False

Question 8

Exhibit 5-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}
\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\mathrm{mt}} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \
\hline \text { C } & 12 & 10 & 0 & 0.8 \
\mathrm{E} & 10 & 8.0 & 0 & 1.1
\end{array}$ 
RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5-1. What is the abnormal rate of return for Stock C during period t using only the aggregate market return (ignore differential systematic risk)?

Accepted Answer

A)  4.0% 
B)  1.2% 
C)  -1.05% 
D)  2.0% 
E)  -8.50 
A)  4.0% 
B)  1.2% 
C)  -1.05% 
D)  2.0% 
E)  -8.50

Question 9

Exhibit 5-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}
\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\text {mt }} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \
\hline \mathrm{A} & 10.6 & 15 & 0 & 0.8 \
\mathrm{Z} & 9.8 & 8.0 & 0 & 1.1
\end{array}$ 
RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5-6. What is the abnormal rate of return for Stock B when you consider its systematic risk measure (beta)?

Accepted Answer

A)  -0.8% 
B)  -1.2% 
C)  1.3% 
D)  2.4% 
E)  6.6% 
A)  -0.8% 
B)  -1.2% 
C)  1.3% 
D)  2.4% 
E)  6.6%

Question 10

Results of studies concerning corporate insider trading indicate that corporate insiders generally enjoy above-average returns.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following behaviours is consistent with escalation bias?

Accepted Answer

A)  Buying more of a stock as it increases in value. 
B)  Buying more of a stock as it decreases in value. 
C)  Selling a stock as it decreases in value. 
D)  Selling a stock as it increases in value. 
E)  Buying or selling a stock as it increases in value. 
A)  Buying more of a stock as it increases in value. 
B)  Buying more of a stock as it decreases in value. 
C)  Selling a stock as it decreases in value. 
D)  Selling a stock as it increases in value. 
E)  Buying or selling a stock as it increases in value.

Question 12

Fusion investing refers to the combination of

Accepted Answer

A)  Technical analysis and fundamental analysis. 
B)  Behavioural analysis and technical analysis. 
C)  Fundamental analysis and investor sentiment. 
D)  Technical analysis and investor sentiment. 
E)  All of the above. 
A)  Technical analysis and fundamental analysis. 
B)  Behavioural analysis and technical analysis. 
C)  Fundamental analysis and investor sentiment. 
D)  Technical analysis and investor sentiment. 
E)  All of the above.

Question 13

Exhibit 5-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}
\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\text {mt }} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \
\hline \mathrm{A} & 10.6 & 15 & 0 & 0.8 \
\mathrm{Z} & 9.8 & 8.0 & 0 & 1.1
\end{array}$ 
RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5-5. What is the abnormal rate of return for Stock Z during period t using only the aggregate market return (ignore differential systematic risk)?

Accepted Answer

A)  1.80 
B)  1.40 
C)  -1.80 
D)  -4.80 
E)  -8.80 
A)  1.80 
B)  1.40 
C)  -1.80 
D)  -4.80 
E)  -8.80

Question 14

Which statement is true concerning alternative efficient market hypothesis?

Accepted Answer

A)  The weak hypothesis encompasses the semi-strong hypothesis. 
B)  The weak hypothesis encompasses the strong hypothesis. 
C)  The semi-strong hypothesis encompasses the weak hypothesis. 
D)  The strong hypothesis relates only to public information. 
E)  All of the above statements are false. 
A)  The weak hypothesis encompasses the semi-strong hypothesis. 
B)  The weak hypothesis encompasses the strong hypothesis. 
C)  The semi-strong hypothesis encompasses the weak hypothesis. 
D)  The strong hypothesis relates only to public information. 
E)  All of the above statements are false.

Question 15

Exhibit 5-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $$\begin{array} { l c c c c } 
\text { Stack } & R _ { \text {in } } & R _ { \text {mi } } & a _ { i } & \text { Beta } \
\hline \text { Elliat } & 9.9 & 15.0 & 0 & 0.8 \
\text { Hemlick } & 9.1 & 8.0 & 0 & 1.1
\end{array}$$ 
RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5-3. What is the abnormal rate of return for Hemlick when you consider its systematic risk measure (beta)?

Accepted Answer

A)  0.1% 
B)  0.3% 
C)  0.5% 
D)  1.5% 
E)  3.0% 
A)  0.1% 
B)  0.3% 
C)  0.5% 
D)  1.5% 
E)  3.0%

Question 16

Which is not an implication of the EMH?

Accepted Answer

A)  To do superior industry or company analysis you must understand the variables that affect returns and do a superior job of estimating these variables. 
B)  Aggregate market analysis that involves very detailed analysis of reliable historical economic data should outperform a simple buy-and-hold policy. 
C)  A superior analyst is one who can consistently select stocks that provide positive abnormal returns on a risk-adjusted basis. 
D)  If a portfolio manager does not have any superior analysts, he/she should consider investing funds in an index fund. 
E)  If a portfolio manager has some superior analytical skills, they should be encouraged to concentrate in second tier stocks which have liquidity, but may be neglected. 
A)  To do superior industry or company analysis you must understand the variables that affect returns and do a superior job of estimating these variables. 
B)  Aggregate market analysis that involves very detailed analysis of reliable historical economic data should outperform a simple buy-and-hold policy. 
C)  A superior analyst is one who can consistently select stocks that provide positive abnormal returns on a risk-adjusted basis. 
D)  If a portfolio manager does not have any superior analysts, he/she should consider investing funds in an index fund. 
E)  If a portfolio manager has some superior analytical skills, they should be encouraged to concentrate in second tier stocks which have liquidity, but may be neglected.

Question 17

Exhibit 5-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}
\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\text {mt }} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \
\hline \mathrm{A} & 10.6 & 15 & 0 & 0.8 \
\mathrm{Z} & 9.8 & 8.0 & 0 & 1.1
\end{array}$ 
RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5-5. 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)  3.40 
B)  4.40 
C)  -1.86 
D)  -4.40 
E)  -1.70 
A)  3.40 
B)  4.40 
C)  -1.86 
D)  -4.40 
E)  -1.70

Question 18

Exhibit 5-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc}
\text { Stock } & \mathrm{R}_{\text {it }} & \mathrm{R}_{\text {mt }} & \mathrm{a}_{\mathrm{i}} & \text { Beta } \
\hline \mathrm{A} & 10.6 & 15 & 0 & 0.8 \
\mathrm{Z} & 9.8 & 8.0 & 0 & 1.1
\end{array}$ 
RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5-6. 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)  -2.3% 
B)  -0.3% 
C)  0.3% 
D)  2.3% 
E)  3.0% 
A)  -2.3% 
B)  -0.3% 
C)  0.3% 
D)  2.3% 
E)  3.0%

Question 19

Exhibit 5-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $$\begin{array} { l c c c c } 
\text { Stack } & R _ { \text {in } } & R _ { \text {mi } } & a _ { i } & \text { Beta } \
\hline \text { Elliat } & 9.9 & 15.0 & 0 & 0.8 \
\text { Hemlick } & 9.1 & 8.0 & 0 & 1.1
\end{array}$$ 
RS1U1B1itS1U1B0 = return for stock i during period t
RS1U1B1mtS1U1B0 = return for the aggregate market during period t
-Refer to Exhibit 5-3. 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 20

Results from studies on the effects of unexpected world events have consistently indicated that the price change is so rapid, that it takes place between the close of one day and the opening of the next day.

Accepted Answer

A) True 
 B)False

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

Which of the following would be inconsistent with an efficient market?

Banz and Reinganum found that small firms consistently outperformed large firms. This anomaly is referred to as the

Fusion investing is the integration of the following elements of investment valuation:

The random walk hypothesis contends that stock prices occur randomly.

Results of studies concerning corporate insider trading indicate that corporate insiders generally enjoy above-average returns.

Which of the following behaviours is consistent with escalation bias?

Fusion investing refers to the combination of

Which statement is true concerning alternative efficient market hypothesis?

Which is not an implication of the EMH?

Results from studies on the effects of unexpected world events have consistently indicated that the price change is so rapid, that it takes place between the close of one day and the opening of the next day.

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

Filters

Exam 5: Efficient Capital Markets

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

Which of the following would be inconsistent with an efficient market?

Banz and Reinganum found that small firms consistently outperformed large firms. This anomaly is referred to as the

Fusion investing is the integration of the following elements of investment valuation:

The random walk hypothesis contends that stock prices occur randomly.

Results of studies concerning corporate insider trading indicate that corporate insiders generally enjoy above-average returns.

Which of the following behaviours is consistent with escalation bias?

Fusion investing refers to the combination of

Which statement is true concerning alternative efficient market hypothesis?

Which is not an implication of the EMH?

Results from studies on the effects of unexpected world events have consistently indicated that the price change is so rapid, that it takes place between the close of one day and the opening of the next day.

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

Filters