Question 1

Proponents of the EMH typically advocate __________.

Accepted Answer

A)   a conservative investment strategy
B)   a liberal investment strategy
C)   a passive investment strategy
D)   an aggressive investment strategyE) A) and B)
F) B) and C)

Question 2

Most of the stock price response to a corporate earnings or dividend announcement occurs within ________________.

Accepted Answer

A)   about 30 seconds
B)   about 10 minutes
C)   6 months
D)   2 yearsE) B) and C)
F) All of the above

Question 3

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 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 EMH
B)   the weak-form EMH
C)   technical analysis
D)   the semistrong-form EMHE) B) and C)
F) A) and B)

Question 4

Which of the following is not a method employed by fundamental analysts?

Accepted Answer

A)   Analyzing the Fed's next interest rate move
B)   Relative strength analysis
C)   Earnings forecasting
D)   Estimating the economic growth rateE) All of the above
F) A) and C)

Question 5

The broadest information set is included in the

Accepted Answer

A)   weak form efficiency argument
B)   semi-strong form efficiency argument
C)   strong form efficiency argument
D)   technical analysis trading methodE) A) and B)
F) All of the above

Question 6

The strong form of the EMH states that ________ must be reflected in the current stock price.

Accepted Answer

A)   all security price and volume data
B)   all publicly available information
C)   all information including inside information
D)   all costless informationE) A) and B)
F) A) and C)

Question 7

The small firm in January effect is strongest ________.

Accepted Answer

A)   early in the month
B)   in the middle of the month
C)   late in the month
D)   in even numbered yearsE) None of the above
F) All of the above

Question 8

Value stocks usually exhibit ___ price-to-book ratios and ___ price-to-earnings ratios.

Accepted Answer

A)   low, low
B)   low, high
C)   high, low
D)   high, highE) B) and D)
F) A) and B)

Question 9

Even if the markets are efficient,professional portfolio management is still important because it provides investors with _________.
I.low cost diversification
II.provides a portfolio with a specified risk level
III.provides better risk adjusted returns than an index

Accepted Answer

A)   I only
B)   I and II only
C)   II and III only
D)   I, II and IIIE) All of the above
F) B) and D)

Question 10

An implication of the efficient market hypothesis is that __________.

Accepted Answer

A)   high beta stocks are consistently overpriced
B)   low beta stocks are consistently overpriced
C)   nonzero alphas will quickly disappear
D)   growth stocks are better buys than value stocksE) A) and C)
F) B) and C)

Question 11

Tests of mutual fund performance indicate that funds with ______________ tend to have poorer performance.

Accepted Answer

A)   more funds in the family
B)   higher expense and turnover ratios
C)   lower management fees
D)   larger asset sizeE) A) and B)
F) A) and C)

Question 12

If you believe in the __________ form of the EMH,you believe that stock prices reflect all relevant information including information that is available only to insiders.

Accepted Answer

A)   semi-strong
B)   strong
C)   weak
D)   perfectE) None of the above
F) C) and D)

Question 13

__________ is the return on a stock beyond what would be predicted from market movements alone.

Accepted Answer

A)   A normal return
B)   A subliminal return
C)   An abnormal return
D)   An excess returnE) B) and C)
F) B) and D)

Question 14

When testing mutual fund performance over time one must be careful of ___________,which means that a certain percentage of poorer performing funds fail over time which makes the performance of remaining funds seem more consistent over time.

Accepted Answer

A)   survivorship bias
B)   lucky event bias
C)   magnitude bias
D)   mean reversion biasE) None of the above
F) A) and B)

Question 15

A mutual fund which attempts to hold quantities of shares in proportion to their representation in the market is called a __________ fund.

Accepted Answer

A)   stock
B)   index
C)   hedge
D)   money marketE) B) and C)
F) A) and B)

Question 16

Evidence supporting semi-strong form market efficiency suggests that investors should _________________________.

Accepted Answer

A)   rely on technical analysis to select securities
B)   rely on fundamental analysis to select securities
C)   use a passive trading strategy such as purchasing an index fund or an ETF
D)   select securities by throwing darts at the financial pages of the newspaperE) A) and B)
F) B) and C)

Question 17

Proponents of the EMH think technical analysts __________.

Accepted Answer

A)   should focus on relative strength
B)   should focus on resistance levels
C)   should focus on support levels
D)   are wasting their timeE) None of the above
F) A) and D)

Question 18

Which Fidelity Magellan portfolio manager is often referenced as an exception to the general conclusion of efficient markets?

Accepted Answer

A)   Jeff Vinik
B)   Peter Lynch
C)   Robert Stansky
D)   William HayesE) A) and C)
F) B) and C)

Question 19

The term random walk is used in investments to refer to ______________.

Accepted Answer

A)   stock price changes that are random but predictable
B)   stock prices that respond slowly to both old and new information
C)   stock price changes that are random and unpredictable
D)   stock prices changes that follow the pattern of past price changesE) B) and D)
F) A) and B)

Question 20

Which of the following stock price observations would appear to contradict the weak form of the efficient market hypothesis?

Accepted Answer

A)   The average rate of return is significantly greater than zero.
B)   The correlation between the market return one week and the return the following week is zero.
C)   You could have consistently made superior returns by buying stock after a 10% rise in price and selling after a 10% fall.
D)   You could have consistently made superior returns by forecasting future earnings performance with your new Crystal Ball forecast methodology.E) C) and D)
F) A) and B)

Exam 8: The Efficient Market Hypothesis

Which of the following is not a method employed by fundamental analysts?

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An implication of the efficient market hypothesis is that __________.

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Evidence supporting semi-strong form market efficiency suggests that investors should _________________________.

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The small firm in January effect is strongest ________.

Correct AnswerverifiedShow Answer

Which of the following stock price observations would appear to contradict the weak form of the efficient market hypothesis?

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Most of the stock price response to a corporate earnings or dividend announcement occurs within ________________.

Correct AnswerverifiedShow Answer

Value stocks usually exhibit ___ price-to-book ratios and ___ price-to-earnings ratios.

Correct AnswerverifiedShow Answer

If you believe in the __________ form of the EMH,you believe that stock prices reflect all relevant information including information that is available only to insiders.

Correct AnswerverifiedShow Answer

__________ is the return on a stock beyond what would be predicted from market movements alone.

Correct AnswerverifiedShow Answer

Proponents of the EMH think technical analysts __________.

Correct AnswerverifiedShow Answer

Even if the markets are efficient,professional portfolio management is still important because it provides investors with _________. I.low cost diversification II.provides a portfolio with a specified risk level III.provides better risk adjusted returns than an index

Correct AnswerverifiedShow Answer

The term random walk is used in investments to refer to ______________.

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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 once he had eliminated his loss.If other investors do the same to establish a trading pattern this would contradict _______.

Correct AnswerverifiedShow Answer

Tests of mutual fund performance indicate that funds with ______________ tend to have poorer performance.

Correct AnswerverifiedShow Answer

A mutual fund which attempts to hold quantities of shares in proportion to their representation in the market is called a __________ fund.

Correct AnswerverifiedShow Answer

The strong form of the EMH states that ________ must be reflected in the current stock price.

Correct AnswerverifiedShow Answer

The broadest information set is included in the

Correct AnswerverifiedShow Answer

Which Fidelity Magellan portfolio manager is often referenced as an exception to the general conclusion of efficient markets?

Correct AnswerverifiedShow Answer

Proponents of the EMH typically advocate __________.

Correct AnswerverifiedShow Answer

When testing mutual fund performance over time one must be careful of ___________,which means that a certain percentage of poorer performing funds fail over time which makes the performance of remaining funds seem more consistent over time.

Correct AnswerverifiedShow Answer

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Value stocks usually exhibit _ price-to-book ratios and _ price-to-earnings ratios.

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