Market Efficiency , business and finance homework help

Question 1

Informational efficiency is a measure of how quickly and accurately markets react to new information.

True or False ?

Question 2

The least restrictive form of the efficient market hypothesis (EMH) is known as weak form efficiency, which states that security prices reflect only publicly known information – not any private information.

True or False ?

Question 3

An investor who believes in the semi strong form of market efficiency is concerned only with information contained in past stock prices.

True or False ?

Question 4

The strong form of EMH states that even corporate insiders cannot make abnormal profits by exploiting private information.

True or False ?

Question 5

Which of the following is a reason why the evidence doesn’t support the strong form of EMH?

A

Insider trading is profitable and therefore illegal.

B

Technical analysis has a history of mixed results.

C

Stock prices go up when insiders sell large holdings.

D

The question is incorrect; the evidence DOES support the strong form of EMH.

Question 6

Insider trading is illegal because it allows individuals with material nonpublic information to profit from that information at the expense of other market participants who have no such information.

True or False ?

Question 7

According to the semi-efficient market hypothesis, some stocks are priced more efficiently than others, and it’s hard to paint all securities with the same brush.

True or False ?

Question 8

If you believe in the semi-efficient market hypothesis, then you believe there’s some opportunity for good stock research analysts to make money using only publicly-available information.

True or False ?

Question 9

The idea that stock prices follow a random pattern because information about stocks arrives randomly over time is know as:

A.

The low-PE effect

B.

The random market hypothesis (RMH)

C.

The random-PE effect

D.

A random walk

Question 10

According to the ______________ effect, stocks with _____________ provide higher returns than those with _____________ .

A.

high-PE; high-PE’s; low-PE’s

B.

wealth; higher earnings; lower earnings

C.

low-PE; low-PE’s; high-PE’s

D.

random walk; known PE’s; random PE’s

Question 11

The small firm effect recognizes which of the following?

A

That small company stocks, on average, provide superior risk-adjusted returns.

B

That small firms get crowded out of the best trades and therefore have a worse track record of finding good investments.

C

That small company stocks, on average, provide inferior risk-adjusted returns.

D

That small research firms are more nimble and therefore have a better track record of finding good investments.

Question 12

The neglected firm effect is an observed phenomenon whereby stocks that receive less analyst coverage have worse long-term returns. That’s why companies try to attract analyst coverage.

True or False ?

Question 13

Markets rarely overreact during periods of extreme, negative news.

True or False ?

Question 14

The January effect describes:

A.

The likelihood of large cap stocks to outperform small cap stocks.

B.

The tendency for stocks to perform poorly in January.

C.

The tendency for stocks to perform well in January.

D.

The likelihood of increased initial public offerings (IPOs) in January.

Question 15

Despite the varying forms of efficient market hypothesis, many financial professors and professionals still believe that markets have a degree of inefficiency worth exploiting.

True or False ?

 
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