6. The Adaptive Markets Hypothesis ... A. States that asset markets could never be semi-strong form efficient. B. Claims that investors may appear to act irrationally as they respond to the arrival of new information C. Assumes that asset prices evolve according to the random walk hypothesis. D. Predicts that in the absence of financial market shocks', asset prices will even- tually evolve in accordance with the Efficient Markets Hypothesis, 7. On 1st June 2015, Avicent plc announced a 3-for-1 split of its ordinary shares, upon which the share price fell from $144 (old shares) to $60 (new shares). A. The evidence shows that there is an arbitrage opportunity, buy the shares imme- diately after the announcement and sell them shortly after the split has occurred. B. The Efficient Markets Hypothesis predicts that, after falling to $60. Avicent's share price will jump to $72 (per new share). C. The evidence from Avicent's share-split shows that the market for its shares is weak form inefficient. D. The evidence from Avicent's share-split shows that the market for its shares is weak form efficient E. The information provided is insufficient to determine whether the market for Avicent's shares is informationally efficient. F. The evidence from Avicent's share-split demonstrates that the market for its shares is informationally inefficient 8 efficiency with respect to an information set, o, implies that it is impossible to make economic profits by trading on the basis of 6." (New Palgrave Dictionary of Money and Finance, 1992) A. An investor who has information in addition to o, is sure to make economic profits. B. The statement is equivalent to weak form' efficiency for the given information seto C. If contains all publicly available information, then the market is strong form efficient. D. If economic profit' is any rate of return in excess of the risk-free rate, then the statement is correct, otherwise it is false. E. The statement allows the possibility that 'economic profits' may be made by chance (a fluke), irrespective of the precise definition of economic profits F. Any investor with less information than contained in is sure to make economic losses from any trading strategy 9. The Closed End Mutual Fund (CEMF) Paradox asserts that the stock market value of a fund's shares tends to be lower than the total value of the shares that it holds in its portfolio e, it "trades at a discount) A. The CEMF Paradox must represent a financial anomaly because it is inexplica B. That CEMF Paradox is an example of asset market inefficiency but not necessar- ay an anomaly C. The CEMF Paradox would representa financial market anomaly if it violates what is considered to be conventional wisdom' but it might be compatible with met market efficiency D. The CEMP Paradox could regarded as an example of an anomaly only if sometimes CEM traded shave the value the shares that it holds e not al- ways at a discount, sometimes at premium) ble 10. Suppose that the Sharpe ratio for asset I is 51 = 0.40, while that for asset 2 is 82 0.15 A. It follows that the Risk Adjusted Performance, RAP, for asset 1, RAP, exceeds that for asset 2, RAP, RAP > RAP, for any chosen benchmark standard deviation of retum. O. B. It follows that the risk premium for asset 1. exeeds that for asset 2. (441 ro > H2-ro). C. It is possible that RAR 01. D. If o, > 0, then given s; > 82, it follows that the risk premium for asset I is less than that for asset 2, i.e.. (4- To B. F. The beta-coefficient for asset 1, B1. may be greater or less than the beta-coefficient for asset 2.B 11. The Second Mutual Fund Theorem (with a risk-free asset) in mean-variance portfolio selection... A. Predicts that all investors will hold a non-zero proportion of the risk-free asset in their portfolios B. Requires every investor to hold at least two risky assets in their portfolios. C. Assumes that the set of efficient mean-variance portfolios contains exactly two mutual funds comprising risky-assets alonc. D. Predicts that it is possible to form a mutual fund comprising risky assets alone, such that investors can always form an optimal portfolio from just the risk-free asset and the mutual fund, irrespective of their risk avension. E. Requires that all investors are risk-averse (though not that they all share the same degree of version to risk) 12. Assume that all investors choose portfolios from among a risk free asset and 19 risky assets. All investors seek to maximize a mean-variance objective. They agree about the values of the means, variances and covariances (homogeneous beliefs) but may have different risk preferences A. Every investor's optimum portfolio can be constructed from two mutual funds (composite assets) at least one of which includes the risk-free asset B. The portfolio of every investor will be diversitied so that the proportion held of each asset is the a same for each risky assetes, 1/19526% for each anset) with the remainder, if any, in the risk-free asset The portfolio of every investor will be diversified so that the portfolio proportion of cery tis 1/20 - 5. the 19 risky assets and the risk-freeass D. Every investor's optimam portfolio can be constructed from twe mutual funds (composite asset)ach of which consiste entirely of risky anets 6. The Adaptive Markets Hypothesis ... A. States that asset markets could never be semi-strong form efficient. B. Claims that investors may appear to act irrationally as they respond to the arrival of new information C. Assumes that asset prices evolve according to the random walk hypothesis. D. Predicts that in the absence of financial market shocks', asset prices will even- tually evolve in accordance with the Efficient Markets Hypothesis, 7. On 1st June 2015, Avicent plc announced a 3-for-1 split of its ordinary shares, upon which the share price fell from $144 (old shares) to $60 (new shares). A. The evidence shows that there is an arbitrage opportunity, buy the shares imme- diately after the announcement and sell them shortly after the split has occurred. B. The Efficient Markets Hypothesis predicts that, after falling to $60. Avicent's share price will jump to $72 (per new share). C. The evidence from Avicent's share-split shows that the market for its shares is weak form inefficient. D. The evidence from Avicent's share-split shows that the market for its shares is weak form efficient E. The information provided is insufficient to determine whether the market for Avicent's shares is informationally efficient. F. The evidence from Avicent's share-split demonstrates that the market for its shares is informationally inefficient 8 efficiency with respect to an information set, o, implies that it is impossible to make economic profits by trading on the basis of 6." (New Palgrave Dictionary of Money and Finance, 1992) A. An investor who has information in addition to o, is sure to make economic profits. B. The statement is equivalent to weak form' efficiency for the given information seto C. If contains all publicly available information, then the market is strong form efficient. D. If economic profit' is any rate of return in excess of the risk-free rate, then the statement is correct, otherwise it is false. E. The statement allows the possibility that 'economic profits' may be made by chance (a fluke), irrespective of the precise definition of economic profits F. Any investor with less information than contained in is sure to make economic losses from any trading strategy 9. The Closed End Mutual Fund (CEMF) Paradox asserts that the stock market value of a fund's shares tends to be lower than the total value of the shares that it holds in its portfolio e, it "trades at a discount) A. The CEMF Paradox must represent a financial anomaly because it is inexplica B. That CEMF Paradox is an example of asset market inefficiency but not necessar- ay an anomaly C. The CEMF Paradox would representa financial market anomaly if it violates what is considered to be conventional wisdom' but it might be compatible with met market efficiency D. The CEMP Paradox could regarded as an example of an anomaly only if sometimes CEM traded shave the value the shares that it holds e not al- ways at a discount, sometimes at premium) ble 10. Suppose that the Sharpe ratio for asset I is 51 = 0.40, while that for asset 2 is 82 0.15 A. It follows that the Risk Adjusted Performance, RAP, for asset 1, RAP, exceeds that for asset 2, RAP, RAP > RAP, for any chosen benchmark standard deviation of retum. O. B. It follows that the risk premium for asset 1. exeeds that for asset 2. (441 ro > H2-ro). C. It is possible that RAR 01. D. If o, > 0, then given s; > 82, it follows that the risk premium for asset I is less than that for asset 2, i.e.. (4- To B. F. The beta-coefficient for asset 1, B1. may be greater or less than the beta-coefficient for asset 2.B 11. The Second Mutual Fund Theorem (with a risk-free asset) in mean-variance portfolio selection... A. Predicts that all investors will hold a non-zero proportion of the risk-free asset in their portfolios B. Requires every investor to hold at least two risky assets in their portfolios. C. Assumes that the set of efficient mean-variance portfolios contains exactly two mutual funds comprising risky-assets alonc. D. Predicts that it is possible to form a mutual fund comprising risky assets alone, such that investors can always form an optimal portfolio from just the risk-free asset and the mutual fund, irrespective of their risk avension. E. Requires that all investors are risk-averse (though not that they all share the same degree of version to risk) 12. Assume that all investors choose portfolios from among a risk free asset and 19 risky assets. All investors seek to maximize a mean-variance objective. They agree about the values of the means, variances and covariances (homogeneous beliefs) but may have different risk preferences A. Every investor's optimum portfolio can be constructed from two mutual funds (composite assets) at least one of which includes the risk-free asset B. The portfolio of every investor will be diversitied so that the proportion held of each asset is the a same for each risky assetes, 1/19526% for each anset) with the remainder, if any, in the risk-free asset The portfolio of every investor will be diversified so that the portfolio proportion of cery tis 1/20 - 5. the 19 risky assets and the risk-freeass D. Every investor's optimam portfolio can be constructed from twe mutual funds (composite asset)ach of which consiste entirely of risky anets