ECON 3660 Study Guide - Final Guide: Efficient-Market Hypothesis, Value Line, Stock Exchange
8 Apr 2018
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MULTIPLE CHOICE
1. Which of the following would be inconsistent with an efficient market?
e.) Price adjustments are biased
ANS: E
2. Fusion investing is the integration of the following elements of investment valuation:
a.) Fundamental value and investor sentiment
ANS: A
3. The weak form of the efficient market hypothesis states that
b.) Successive price changes are independent.
ANS: B
4. Which statement is true concerning alternative efficient market hypothesis?
c.) The semi-strong hypothesis encompasses the weak hypothesis.
ANS: C
5. If statistical tests of stock returns over time support the efficient market hypothesis the
resulting correlations should be
c.) Zero
ANS: C
6. A "runs test" on successive stock price changes which supports the efficient market
hypothesis would show the actual number of runs
a.) Falls into the range expected of a random series
ANS: A
7. A trading rule which signals purchase of a stock if it rises X percent and sale of a stock if it
falls X percent is known as a
d.) Filter
ANS: D
8. Which of the following has not been involved in a direct test of the semi-strong form of the
efficient market hypothesis?
e.) Specialists' returns
ANS: E
9. Examples of anomalies providing contrary evidence to the semi-strong efficient market
hypothesis include studies of all of the following except
d.) Stocks ranked by Canadian Bond Rating Service
ANS: D
10. The opportunity to take advantage of the downward pressure on stock prices that result
from end-of-the-year tax selling is known as
d.) The January Anomaly
ANS: D
11. Banz and Reinganum found that small firms consistently outperformed large firms. This
anomaly is referred to as the
b.) Size effect
ANS: B
12. The performance of four major groups of investors has been studied in connection with tests
of the strong-form of the efficient market hypothesis. These include all of the following except
c.) Securities Exchange officers
ANS: C
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13. Abnormal returns associated with rankings by a major advisory service are associated with
b.) The Value-Line Enigma
ANS: B
14. The implication of efficient capital markets and a lack of superior analysts have led to the
introduction of
d.) Index funds
ANS: D
15. Superior analysts are encouraged to concentrate their efforts in "middle tier" stocks. This is
recommended because
c.) prices may not adjust quite as rapidly for middle tier stocks as they do in the top tier; therefore, the chances of
temporarily undervalued securities are greater
ANS: C
16. A portfolio manager without superior analytical skills should
a.) Determine and quantify the risk preferences of a client
b.) Minimize transaction costs
c.) Maintain the specified risk level
d.) Ensure that the portfolio is completely diversified
e.) All of the above
ANS: E
17. Which is not an implication of the EMH?
b.) Aggregate market analysis that involves very detailed analysis of reliable historical economic data should
outperform a simple buy-and-hold policy
ANS: B
18. Some studies have attempted to determine whether it is possible to predict future returns
for a stock based on publicly available quarterly earnings reports. The results of these studies
indicate
b.) Stock prices do not adjust to reflect quarterly earnings reports
ANS: B
19. The results of studies that have looked at the relationship between PEG ratios and
subsequent stock returns
c.) Find an inverse relationship, with monthly or quarterly rebalancing
ANS: C
20. The strongest explanations for the size anomaly are
a.) risk measurements
b.) higher transaction costs
d.) Choices a and b
ANS: D
21. Fama and French examined the relationship between the Book Value to Market Value ratio
and average stock returns and found
e.) Evidence of a positive relationship for U.S. and Japanese stocks
ANS: E
22. Investigators have tested the strong form EMH by examining the performance of the
following type of investor
a.) Corporate insiders
b.) Stock exchange specialists
c.) Security analysts
d. Professional money managers
e.) All of the above
ANS: E
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