Question 1

A period in which prices rise strongly,departing from their true value,frequently followed by a sudden decrease in prices is known as a/an:

Accepted Answer

A)  post-event drift.
B)  bubble.
C)  overreaction anomaly.
D)  buy and hold period.E) A) and B)
F) B) and D)

Question 2

A weak-form efficient market can best be described as a market in which:

Accepted Answer

A)  trading strategies based upon past share prices cannot earn abnormal profits.
B)  all publicly available information is fully reflected in share prices.
C)  share prices follow predictable trends.
D)  trading strategies based on past information can earn abnormal profits.E) B) and D)
F) C) and D) A

Question 3

Semi-strong-form efficiency can best be described as:

Accepted Answer

A)  the ability of investors to earn abnormal profits from the over-reaction of share prices to news.
B)  a market in which trading strategies based on past prices cannot earn abnormal profits.
C)  a market in which trading strategies based on all publicly available information cannot earn abnormal profits.
D)  all information,public and private,is fully impounded in share prices.E) A) and B)
F) A) and C)

Question 4

In an efficient market,there should be an instantaneous and ____________ share price reaction to information.

Accepted Answer

The answer of In an efficient market,there should be an...

Question 5

If the stock market is efficient then:

Accepted Answer

A)  investors should consider factors,such as risk preferences,when selecting a portfolio of securities.
B)  investors should select their investments randomly since all securities are correctly priced anyway.
C)  a portfolio of randomly selected securities will necessarily eliminate all unsystematic risk.
D)  portfolio selection becomes easy since all information is impounded in share prices.E) C) and D)
F) A) and D)

Question 6

According to Brown,Finn and Hancock (1977) ,the highest positive abnormal returns are associated with the simultaneous announcement of:

Accepted Answer

A)  profit increases and dividends per share decreases.
B)  profit and dividends per share decreases.
C)  profit and dividends per share increases.
D)  profit decreases and dividends per share increases.E) A) and D)
F) B) and C) C

Question 7

Which of the following statements is the most consistent with evidence provided on the EMH?

Accepted Answer

A)  Technical analysis is a worthwhile trading strategy for most investors.
B)  Most investors have access to private information.
C)  Most investors should adopt a passive buy-and-hold strategy,most of the time.
D)  Fundamental analysis is a worthwhile trading strategy for most investors.E) All of the above
F) A) and D)

Question 8

The 'representativeness heuristic' is a term to describe irrational behaviour that suggests that:

Accepted Answer

A)  in forming their beliefs,individuals may be too slow in identifying a firm as an excellent or a terrible investment.
B)  in forming their beliefs,individuals may be more enthusiastic about companies with better slogans.
C)  in forming their beliefs,individuals may be less enthusiastic about companies with better slogans as it implies that the company is trying to detract investors from focusing on its financial performance.
D)  None of the given options is correct.E) A) and B)
F) None of the above

Question 9

Which of the following statements about market efficiency is true?

Accepted Answer

A)  A market can be semi-strong-form and strong-form efficient but not weak-form efficient.
B)  A market can be semi-strong-form efficient but not weak-form efficient.
C)  A market can be semi-strong-form,weak-form or strong-form efficient but not all simultaneously.
D)  A market must be weak-form efficient if it is semi-strong-form efficient.E) All of the above
F) None of the above

Question 10

In an efficient market,it is not possible (except by chance)to employ trading strategies that generate excess profits over the long-term.

Accepted Answer

A) True 
 B)False

Question 11

A number of studies have found that better (or poorly) performing shares continue to perform well (poorly) in the medium term.This effect is termed the:

Accepted Answer

A)  book-to-market effect.
B)  price/earnings effect.
C)  momentum effect.
D)  None of the given answers.E) A) and B)
F) None of the above

Question 12

ABC Ltd made an unexpected announcement concerning a major new contract on Monday,but ABC shares were not traded until the following Wednesday and Friday.The closing price on Wednesday was unchanged from Monday but different to that on Friday.Trading of ABC shares appears to be an example of:

Accepted Answer

A)  market efficiency.
B)  an announcement imparting no 'new' news.
C)  market inefficiency.
D)  infrequent trading,not market inefficiency.E) A) and B)
F) B) and D) C

Question 13

The dividend yield effect may be explained by the fact that:

Accepted Answer

A)  if dividends are taxed more heavily than capital gains,investors will prefer a dollar of before-tax capital gains to a dollar of before-tax dividends.
B)  if dividends are taxed more heavily than capital gains,investors will prefer a dollar of before-tax dividends to a dollar of before-tax capital gains.
C)  investors will require high before-tax returns on shares that pay low dividends in order to compensate them for the higher tax burden that the capital gains will impose.
D)  none of the given options.E) B) and C)
F) A) and D)

Question 14

In a market that is strong form efficient,___________ information cannot be acted upon to generate abnormal returns.

Accepted Answer

The answer of In a market that is strong form...

Question 15

An implication of the EMH for financial managers is that:

Accepted Answer

A)  investing in a project that increases the company's true value will be reflected in the share price upon release of the information.
B)  the current share price is not a good indicator of the company's true value.
C)  the company's share price may overstate the true value of the company.
D)  All of the given answers.E) B) and D)
F) B) and C)

Question 16

If the stock market is efficient with respect to the incorporation of publicly available information,then:

Accepted Answer

A)  charting a company's share prices is likely to be profitable.
B)  technical analysis is likely to be profitable.
C)  fundamental analysis is unlikely to be profitable.
D)  insider information is unlikely to lead to abnormal profits.E) A) and B)
F) A) and C)

Question 17

Gold Ltd made an unexpected announcement at 11am that a new gold mine had been discovered.The share price established in the last trade before the announcement was 37 cents.The first trade after the announcement was also at 37 cents but the following trade took place at 52 cents,which became the new established price.With regards to the first trade after the announcement:

Accepted Answer

A)  the buyer has made an abnormal profit.
B)  the seller has made an abnormal profit.
C)  the buyer has made a normal loss.
D)  the seller has made a normal profit.E) B) and C)
F) A) and D)

Question 18

If the market processes new information efficiently,the reaction of market prices to new information will be:

Accepted Answer

A)  unbiased.
B)  instantaneous.
C)  instantaneous and unbiased.
D)  fair.E) C) and D)
F) All of the above

Question 19

One weakness of the event study methodology is the difficulty in determining the instance in which information was released to the market.

Accepted Answer

A) True 
 B)False

Question 20

Rozeff and Kinney (1976) showed that the average return in January was more than:

Accepted Answer

A)  six times larger than the average returns in the other 11 months.
B)  four times larger than the average returns in the other 11 months.
C)  five times larger than the average returns in the other 11 months.
D)  three times larger than the average returns in the other 11 months.E) A) and B)
F) A) and C)

Exam 16: Capital Market Efficiency

A period in which prices rise strongly,departing from their true value,frequently followed by a sudden decrease in prices is known as a/an:

Correct Answer
verified

A weak-form efficient market can best be described as a market in which:

Correct Answer
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A

Semi-strong-form efficiency can best be described as:

Correct Answer
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In an efficient market,there should be an instantaneous and ____________ share price reaction to information.

Correct Answer
verified

If the stock market is efficient then:

Correct Answer
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According to Brown,Finn and Hancock (1977) ,the highest positive abnormal returns are associated with the simultaneous announcement of:

Correct Answer
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C

Which of the following statements is the most consistent with evidence provided on the EMH?

Correct Answer
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The 'representativeness heuristic' is a term to describe irrational behaviour that suggests that:

Correct Answer
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Which of the following statements about market efficiency is true?

Correct Answer
verified

In an efficient market,it is not possible (except by chance)to employ trading strategies that generate excess profits over the long-term.

Correct Answer
verified

A number of studies have found that better (or poorly) performing shares continue to perform well (poorly) in the medium term.This effect is termed the:

Correct Answer
verified

ABC Ltd made an unexpected announcement concerning a major new contract on Monday,but ABC shares were not traded until the following Wednesday and Friday.The closing price on Wednesday was unchanged from Monday but different to that on Friday.Trading of ABC shares appears to be an example of:

Correct Answer
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C

The dividend yield effect may be explained by the fact that:

Correct Answer
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In a market that is strong form efficient,___________ information cannot be acted upon to generate abnormal returns.

Correct Answer
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An implication of the EMH for financial managers is that:

Correct Answer
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If the stock market is efficient with respect to the incorporation of publicly available information,then:

Correct Answer
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Correct Answer
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If the market processes new information efficiently,the reaction of market prices to new information will be:

Correct Answer
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One weakness of the event study methodology is the difficulty in determining the instance in which information was released to the market.

Correct Answer
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Rozeff and Kinney (1976) showed that the average return in January was more than:

Correct Answer
verified

Exam 16: Capital Market Efficiency

A period in which prices rise strongly,departing from their true value,frequently followed by a sudden decrease in prices is known as a/an:

Correct AnswerverifiedShow Answer

A weak-form efficient market can best be described as a market in which:

Correct AnswerverifiedA

Semi-strong-form efficiency can best be described as:

Correct AnswerverifiedShow Answer

In an efficient market,there should be an instantaneous and ____________ share price reaction to information.

Correct AnswerverifiedShow Answer

If the stock market is efficient then:

Correct AnswerverifiedShow Answer

According to Brown,Finn and Hancock (1977) ,the highest positive abnormal returns are associated with the simultaneous announcement of:

Correct AnswerverifiedC

Which of the following statements is the most consistent with evidence provided on the EMH?

Correct AnswerverifiedShow Answer

The 'representativeness heuristic' is a term to describe irrational behaviour that suggests that:

Correct AnswerverifiedShow Answer

Which of the following statements about market efficiency is true?

Correct AnswerverifiedShow Answer

In an efficient market,it is not possible (except by chance)to employ trading strategies that generate excess profits over the long-term.

Correct AnswerverifiedShow Answer

A number of studies have found that better (or poorly) performing shares continue to perform well (poorly) in the medium term.This effect is termed the:

Correct AnswerverifiedShow Answer

ABC Ltd made an unexpected announcement concerning a major new contract on Monday,but ABC shares were not traded until the following Wednesday and Friday.The closing price on Wednesday was unchanged from Monday but different to that on Friday.Trading of ABC shares appears to be an example of:

Correct AnswerverifiedC

The dividend yield effect may be explained by the fact that:

Correct AnswerverifiedShow Answer

In a market that is strong form efficient,___________ information cannot be acted upon to generate abnormal returns.

Correct AnswerverifiedShow Answer

An implication of the EMH for financial managers is that:

Correct AnswerverifiedShow Answer

If the stock market is efficient with respect to the incorporation of publicly available information,then:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the market processes new information efficiently,the reaction of market prices to new information will be:

Correct AnswerverifiedShow Answer

One weakness of the event study methodology is the difficulty in determining the instance in which information was released to the market.

Correct AnswerverifiedShow Answer

Rozeff and Kinney (1976) showed that the average return in January was more than:

Correct AnswerverifiedShow Answer

Correct Answer
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A

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C

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C

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