Question 1

An unbiased reaction is one where there is ___ to the arrival of new information.

Accepted Answer

A)   a slight overreaction
B)   a slight underreaction
C)   a strong overreaction
D)   no overreactionE) A) and D)
F) A) and B)

Question 2

Loyalists believe that the long-term patterns in returns are induced by:

Accepted Answer

A)   the private investor
B)   institutional problems
C)   government policy
D)   none of these choicesE) A) and B)
F) B) and C)

Question 3

Which of the following is a misconception of market efficiency?

Accepted Answer

A)   prices are set in a random fashion
B)   expected return implies actual return
C)   investors will perform equally
D)   all of the aboveE) B) and D)
F) A) and B)

Question 4

Positive autocorrelation implies that negative price changes are followed by positive price changes.

Accepted Answer

A) True 
 B)False

Question 5

One misconception about market efficiency is that:

Accepted Answer

A)   inefficiency implies price volatility
B)   prices are set in a varying manner
C)   expected returns imply actual returns
D)   new information is unpredictableE) None of the above
F) A) and D)

Question 6

The presence of negative correlation over long horizons is consistent with:

Accepted Answer

A)   buil market
B)   bear market
C)   mean reversion
D)   price overreactionE) B) and D)
F) C) and D)

Question 7

The presence of autocorrelation in stock returns is consistent with market efficiency.

Accepted Answer

A) True 
 B)False  False

Question 8

Haugen and Lakonishok (1988) seek to replicate the trading strategy in the USA by:

Accepted Answer

A)   taking a short position in a small firm index and a short position in the S&P 500 index
B)   taking a short position in a large firm index and a long position in the S&P 500 index
C)   taking a long position in a small firm index and a short position in the S&P 500 index
D)   taking a short position in a large firm index and a short position in the NASDAQ indexE) A) and B)
F) B) and C) C

Question 9

The Australian study by Easton in 1990 found an insignificant jump in stock returns around extraordinary item announcements.

Accepted Answer

A) True 
 B)False

Question 10

The large positive returns observed for firms in the Australian market in July and January are primarily caused by market overreaction.

Accepted Answer

A) True 
 B)False

Question 11

Joe bought a stock at $57 per share.The price promptly fell to $55.Joe held on to the stock until it again reached $57,and then he sold it once he had eliminated his loss.If other investors do the same to establish a trading pattern,this would contradict _______.

Accepted Answer

A)  the strong form
B)  the weak form
C)  technical analysis
D)  the semi-strong formE) A) and B)
F) A) and C)

Question 12

The more profitable IPO investments seem to be those:

Accepted Answer

A)   associated with established companies
B)   of a relatively large size
C)   issued in a cold market
D)   all of these choicesE) C) and D)
F) None of the above

Question 13

By using the Consumer Price Index (CPI) as an economic indicator,it can be argued that it has a:

Accepted Answer

A)   significant negative relationship between share prices and unanticipated inflation
B)   significant positive relationship between share prices and anticipated inflation
C)   significant positive relationship between consumer goods prices and anticipated inflation
D)   insignificant negative relationship between share prices and anticipated inflationE) A) and B)
F) C) and D)

Question 14

It is impossible for markets to incorporate all information into prices.

Accepted Answer

A) True 
 B)False

Question 15

The group of investors who trade because of a surplus or need for cash are called:

Accepted Answer

A)   marginal traders
B)   liquidity traders
C)   speculative traders
D)   noise tradersE) A) and B)
F) C) and D)

Question 16

Which of the following strategies will be profitable if the market overreacts?

Accepted Answer

A)   selling an undervalued security
B)   buying an overvalued security
C)   selling an overvalued securityD none of these choicesD) A) and B)
E) None of the above

Question 17

Event study tests generally focus on the price reaction to

Accepted Answer

A)   publicly released information
B)   private information
C)   past information
D)   none of the aboveE) A) and B)
F) All of the above

Question 18

Short-term profits are expected to be greatest by forming a position on/in _________ and closing it in ____________.

Accepted Answer

A)   the first day of the week, the last day of the week
B)   early December, late January
C)   late December, mid January
D)   mid June, early JulyE) B) and D)
F) B) and C)

Question 19

In Australia,which day of the week has equity returns that are on average 'low?

Accepted Answer

A)   Monday
B)   Tuesday
C)   Thursday
D)   FridayE) All of the above
F) A) and C) A

Question 20

Transaction costs of taking a short position exceed those of a long position by:

Accepted Answer

A)   About 40 \% 
B)   About 15\%
C)   About 2-3\%
D)   About  4-5 \% E) A) and C)
F) A) and B)

Exam 10: Concepts and Applications of Market Efficiency

An unbiased reaction is one where there is ___ to the arrival of new information.

Correct AnswerverifiedShow Answer

Loyalists believe that the long-term patterns in returns are induced by:

Correct AnswerverifiedShow Answer

Which of the following is a misconception of market efficiency?

Correct AnswerverifiedShow Answer

Positive autocorrelation implies that negative price changes are followed by positive price changes.

Correct AnswerverifiedShow Answer

One misconception about market efficiency is that:

Correct AnswerverifiedShow Answer

The presence of negative correlation over long horizons is consistent with:

Correct AnswerverifiedShow Answer

The presence of autocorrelation in stock returns is consistent with market efficiency.

Correct AnswerverifiedFalse

Haugen and Lakonishok (1988) seek to replicate the trading strategy in the USA by:

Correct AnswerverifiedC

The Australian study by Easton in 1990 found an insignificant jump in stock returns around extraordinary item announcements.

Correct AnswerverifiedShow Answer

The large positive returns observed for firms in the Australian market in July and January are primarily caused by market overreaction.

Correct AnswerverifiedShow Answer

Joe bought a stock at $57 per share.The price promptly fell to $55.Joe held on to the stock until it again reached $57,and then he sold it once he had eliminated his loss.If other investors do the same to establish a trading pattern,this would contradict _______.

Correct AnswerverifiedShow Answer

The more profitable IPO investments seem to be those:

Correct AnswerverifiedShow Answer

By using the Consumer Price Index (CPI) as an economic indicator,it can be argued that it has a:

Correct AnswerverifiedShow Answer

It is impossible for markets to incorporate all information into prices.

Correct AnswerverifiedShow Answer

The group of investors who trade because of a surplus or need for cash are called:

Correct AnswerverifiedShow Answer

Which of the following strategies will be profitable if the market overreacts?

Correct AnswerverifiedShow Answer

Event study tests generally focus on the price reaction to

Correct AnswerverifiedShow Answer

Short-term profits are expected to be greatest by forming a position on/in _________ and closing it in ____________.

Correct AnswerverifiedShow Answer

In Australia,which day of the week has equity returns that are on average 'low?

Correct AnswerverifiedA

Transaction costs of taking a short position exceed those of a long position by:

Correct AnswerverifiedShow Answer

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False

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C

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Short-term profits are expected to be greatest by forming a position on/in _ and closing it in ____.

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A

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