Question 1

Which one of the following statements is correct concerning market eﬃciency?

Accepted Answer

A)  Real asset markets are more eﬃcient than ﬁnancial markets.
B)  If a market is eﬃcient, arbitrage opportunities should be common.
C)  In an eﬃcient market, some market participants will have an advantage over others.
D)  A ﬁrm will generally receive a fair price when it sells shares.
E)  New information will gradually be reﬂected in a stock's price to avoid any sudden changeIn the price of the stock.F) A) and B)
G) All of the above

Question 2

Consider the following two statements: (i)  If markets are strong form eﬃcient, the only reason that prices change is because there is news.
(ii)  In strong form eﬃcient markets, investors can ignore their risk exposure.

Accepted Answer

A)  (i)  is correct, (ii)  is incorrect.
B)  (ii)  is correct, (i)  is incorrect.
C)  Both (i)  and (ii)  are correct.
D)  Both (i)  and (ii)  are incorrect.
E)  In strong form eﬃcient markets, prices do not change.F) C) and D)
G) A) and E)

Question 3

Financial managers must be cognizant of market eﬃciency because:

Accepted Answer

A)  manipulating earnings by accounting changes does not fool the market.
B)  timing security sales is futile because without private information the current price reﬂectsAll known information.
C)  there is limited price pressure from any large sale of equity depressing prices momentarilyWhich then recover to prior levels.
D)  the market as a whole is shrewd.
E)  All of the above.F) A) and E)
G) A) and D)

Question 4

In an eﬃcient market, the price of a security will:

Accepted Answer

A)  always rise immediately upon the release of new information with no further priceAdjustments related to that information.
B)  react to new information over a two-day period after which time no further priceAdjustments related to that information will occur.
C)  rise sharply when new information is ﬁrst released and then decline to a new stable levelBy the following day.
D)  react immediately to new information with no further price adjustments related to thatInformation.
E)  be slow to react for the ﬁrst few hours after new information is released allowing time forThat information to be reviewed and analyzed.F) D) and E)
G) A) and B)

Question 5

If the securities market is eﬃcient, an investor need only throw darts at the equity pages to pick securities and be just as well off.

Accepted Answer

A)  This is true because there are no differences in risk and return.
B)  This is true because in an eﬃcient stock market prices do not ﬂuctuate.
C)  This is false because professional portfolio managers prefer to generate commissions byActive trading.
D)  This is false because investors may not hold a desirable risk-return combination in theirPortfolio.
E)  This is false because the markets are controlled by the institutional investors.F) All of the above
G) C) and D)

Question 6

Event studies have been used to examine:

Accepted Answer

A)  IPOs, SEOs, and other equity issuances.
B)  changes in earnings.
C)  mergers and acquisitions.
D)  most ﬁnancial events.
E)  All of the above.F) A) and C)
G) C) and D)

Question 7

The hypothesis that market prices reﬂect all publicly available information is called _____ form eﬃciency.

Accepted Answer

A)  open
B)  strong
C)  semi-strong
D)  weak
E)  stableF) D) and E)
G) A) and E)

Question 8

Suppose your cousin invests in the stock market and doubles her money in a single year while the market, on average, earned a return of only about 15%.Is your cousin's performance a violation of market eﬃciency?

Accepted Answer

No, market eﬃciency does not preclude in...

Question 9

Why do we look at cumulative abnormal returns when we test whether markets are eﬃcient?

Accepted Answer

We do so because if market are...

Exam 13: Efficient Capital Markets and Behavioural Finance

Consider the following two statements: (i) If markets are strong form eﬃcient, the only reason that prices change is because there is news. (ii) In strong form eﬃcient markets, investors can ignore their risk exposure.

Correct Answer
verified

Which one of the following statements is correct concerning market eﬃciency?

Correct Answer
verified

Event studies have been used to examine:

Correct Answer
verified

The hypothesis that market prices reﬂect all publicly available information is called _____ form eﬃciency.

Correct Answer
verified

Suppose your cousin invests in the stock market and doubles her money in a single year while the market, on average, earned a return of only about 15%.Is your cousin's performance a violation of market eﬃciency?

Correct Answer
verified
No, market eﬃciency does not preclude in...
View Answer

Why do we look at cumulative abnormal returns when we test whether markets are eﬃcient?

Correct Answer
verified
We do so because if market are...
View Answer

If the securities market is eﬃcient, an investor need only throw darts at the equity pages to pick securities and be just as well off.

Correct Answer
verified

In an eﬃcient market, the price of a security will:

Correct Answer
verified

Financial managers must be cognizant of market eﬃciency because:

Correct Answer
verified

Exam 13: Efficient Capital Markets and Behavioural Finance

Consider the following two statements: (i) If markets are strong form eﬃcient, the only reason that prices change is because there is news. (ii) In strong form eﬃcient markets, investors can ignore their risk exposure.

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning market eﬃciency?

Correct AnswerverifiedShow Answer

Event studies have been used to examine:

Correct AnswerverifiedShow Answer

The hypothesis that market prices reﬂect all publicly available information is called _____ form eﬃciency.

Correct AnswerverifiedShow Answer

Suppose your cousin invests in the stock market and doubles her money in a single year while the market, on average, earned a return of only about 15%.Is your cousin's performance a violation of market eﬃciency?

Correct AnswerverifiedNo, market eﬃciency does not preclude in...View AnswerShow Answer

Why do we look at cumulative abnormal returns when we test whether markets are eﬃcient?

Correct AnswerverifiedWe do so because if market are...View AnswerShow Answer

If the securities market is eﬃcient, an investor need only throw darts at the equity pages to pick securities and be just as well off.

Correct AnswerverifiedShow Answer

In an eﬃcient market, the price of a security will:

Correct AnswerverifiedShow Answer

Financial managers must be cognizant of market eﬃciency because:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified
No, market eﬃciency does not preclude in...
View Answer

Correct Answer
verified
We do so because if market are...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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