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Exam 8: The Efficient Market Hypothesis and Behavioral Finance

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Question 31

Multiple Choice

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________ is the return on a share beyond what would be predicted from market movements alone.

A) A normal return
B) A subliminal return
C) An abnormal return
D) An excess return

E) A) and B)
F) A) and C)

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Question 32

Multiple Choice

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Fama and French have suggested that many market anomalies can be explained as manifestations of ________.

A) regulatory effects
B) high trading costs
C) information asymmetry
D) varying risk premiums

E) A) and D)
F) B) and C)

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Question 33

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Joe bought a share at $57 per share. The price promptly fell to $55. Joe held on to the share 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 ________.

Fundamental analysis is likely to yield best results for ________.

If you believed in the reversal effect, you should ________.

You are looking to invest in one of three shares. Share A has high expected earnings growth, Share B has only modest expected earnings growth and Share C is expected to generate poor earnings growth. Which share is likely to generate the greatest alpha for you?

You are an investment manager who is currently managing assets worth $6 billion. You believe that active management of your fund could generate an additional one-tenth of 1% return on the portfolio. If you want to make sure your active strategy adds value, how much can you spend on security analysis?

Behaviouralists point out that even if market prices are ________ there may be ________.

Important characteristic(s) of market efficiency is that ________. I. there are no arbitrage opportunities II. security prices react quickly to new information III. active trading strategies will not consistently outperform passive strategies

The primary objective of fundamental analysis is to identify ________.

According to the semi-strong form of the efficient markets hypothesis ________.

Testing many different trading rules until you find one that would have worked in the past is called ________.

Growth shares usually exhibit ________ price-to-book ratios and ________ price-to-earnings ratios.

Which one of the following focuses more on past price movements of a firm's share than on the underlying determinants of its future profitability?

The semi-strong form of the efficient market hypothesis implies that ________ generate abnormal returns and ________ generate abnormal returns.

According to Markowitz and other proponents of modern portfolio theory which of the following activities would not be expected to produce any benefits?

A market anomaly refers to ________.

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

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

The weak form of the EMH states that ________ must be reflected in the current share price.