1. Tests of the EMH The Rendleman, Jones and Latane study found a short term momentum effect around ________________that is counter to market efficiency.

• price bubbles
• earnings announcements
• dividend announcements
• the month of January

2. Tests of the EMH The Campbell and Shiller test of market efficiency study finds that

• stock returns are higher in January
• changes in bond credit spreads can predict market returns
• aggregate returns tend to be higher for firms with higher dividend yields
• aggregate returns tend to be higher for firms with higher earnings yields

3.

Implications of Efficiency Even if the market is efficient portfolio management still has many useful purposes, including all but which one of the following?

• Constructing a portfolio to minimize tax liability
• Identifying risk & choosing the appropriate risk level
• Ensuring the portfolio meets the investor's liquidity needs
• Earning positive abnormal returns

4.

Active and Passive Strategies Which of the following are considered active strategies?

I. Purchasing index funds

II. Engaging in security analysis to choose which stocks to hold this quarter

III. Following the advice of investment newsletters

IV. Buying and holding a well diversified portfolio

• I, II, III, IV
• I, II and III only
• II and III only
• II, III and IV only

5. An analyst identifies a head and shoulders price trend for a stock and buys the security. This is a form of __________.

• random walk analysis
• technical analysis
• index analysis
• fundamental analysis

6.

In the following Venn diagram of forms of market efficiency the I. is the ____________, II. is the ____________, and the III. is the ____________.

strong form; semi-strong form; weak form

strong form; weak form; semi-strong form

weak form; semi-strong form; strong form

weak form; strong form; semi-strong form

7.

Forms of the EMH If markets are ________ efficient, use of any information, public or private, provides no benefit at the margin.

• complete form
• weak form
• strong form
• semi-strong form

8.

Forms of the EMH The EMH maintains that prices reflect all relevant information. Weak, semi-strong and strong form efficiency are different versions that vary the relevant information set. Which versions of efficiency would imply that a trading strategy based on trends in historical price and trading volume would not be beneficial?

I. Weak form

II. Semi-strong form

III. Strong form

• I and II only
• II only
• I, II and III
• I only

9. EMH Definition The EMH implies which one of the following?

• Competition among investors results in stock prices that fully reflect publicly available information very quickly.
• Stock prices conform to mathematical models.
• Stock prices exhibit long term trend reversals.
• Investors have unequal access to information.

10. CAPM Assumptions CAPM assumptions include all but which one of the following?

No individual's buy/sell decisions affect a stock's price.

Investors have heterogeneous expectations about security returns

Information is costless and equally available to all investors

There are no taxes or transaction costs.

1. Tests of the EMH The Rendleman, Jones and Latane study found a short term momentum effect a ________________that is counter to market efficiency. a) b) c) d) price bubbles earnings announcements dividend announcements the month of January 2. Tests of the EMH The Campbell and Shiller test of market efficiency study finds that a) stock returns are higher in January b) changes in bond credit spreads can predict market returns c) aggregate returns tend to be higher for firms with higher dividend yields d) aggregate returns tend to be higher for firms with higher earnings yields 3. Implications of Efficiency Even if the market is efficient portfolio management still has many useful including all but which one of the following? a) b) c) d) Constructing a portfolio to minimize tax liability Identifying risk & choosing the appropriate risk level Ensuring the portfolio meets the investor's liquidity needs Earning positive abnormal returns 4. Active and Passive Strategies Which of the following are considered active strategies? I. Purchasing index funds II. Engaging in security analysis to choose which stocks to hold this quarter III. Following the advice of investment newsletters IV. Buying and holding a well diversified portfolio a) b) c) d) I, II, III, IV I, II and III only II and III only II, III and IV only 5. An analyst identifies a head and shoulders price trend for a stock and buys the security. This is a form of __________. a) b) c) d) random walk analysis technical analysis index analysis fundamental analysis 6. In the following Venn diagram of forms of market efficiency the I. is the ____________, II. is the __ and the III. is the ____________. strong form; semistrong form; weak form strong form; weak form; semistrong form weak form; semistrong form; strong form weak form; strong form; semistrong form 7. Forms of the EMH If markets are ________ efficient, use of any information, public or private, prov benefit at the margin. a) b) c) d) complete form weak form strong form semistrong form 8. Forms of the EMH The EMH maintains that prices reflect all relevant information. Weak, semistron form efficiency are different versions that vary the relevant information set. Which versions of effici imply that a trading strategy based on trends in historical price and trading volume would not be ben I. Weak form II. Semistrong form III. Strong form a) I and II only b) II only c) I, II and III d) I only 9. EMH Definition The EMH implies which one of the following? a) Competition among investors results in stock prices that fully reflect publicly available information very quickly. b) Stock prices conform to mathematical models. c) Stock prices exhibit long term trend reversals. d) Investors have unequal access to information. 10. CAPM Assumptions CAPM assumptions include all but which one of the following? No individual's buy/sell decisions affect a stock's price. Investors have heterogeneous expectations about security returns Information is costless and equally available to all investors There are no taxes or transaction costs