1.

Which of the following statements is correct?

Long-run reversal refers to fact that stocks that have performed best over the past three-to-five years outperform stocks that have performed the worst over the same period.

Long-run reversal refers to fact that stocks that have performed the worst over the past three-to-five years outperform stocks that have performed the best over the same period.

According to the efficient market hypothesis, the past returns should predict future returns.

Long-run reversal effect can be explained by investors aversion to loss.

2.

Which of the following investor behaviors can best explain the long-run reversal effect?

Aversion to ambiguity

Reluctance to realize losses

Overreaction

None of the above.

3.

Which of the following can be explained by a combination of anchoring and overconfidence leading investors to adapt insufficiently to the arrival of new information?

Value effect

Momentum

Long-run reversals

Volatility puzzle

4.

What is the difference between momentum and long-run reversals?

They are essentially the same phenomenon; people call them different names.

They both violate the weak-form market efficiency.

They both can be explained by investors errors in processing information.

Momentum can be explained by investors underreaction to news while long-run reversal can be explained by overreaction.

5.

Which of the following statements describe value stocks? (Select all that apply.)

Value stocks are characterized by a low P/E ratio.

Value stocks are characterized by a high P/E ratio.

Value stocks may be riskier than growth stocks.

P/E ratio is the only scaled price measure to identify value stocks.