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Exam 8: The Efficient Market Hypothesis

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Question 41

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"Active investment management may at times generate additional returns of about .1%. However, the standard deviation of the typical well-diversified portfolio is about 20%, so it is very difficult to statistically identify any increase in performance." Even if true, this statement is an example of the ________ problem in deciding how efficient the markets are.

A) magnitude
B) selection bias
C) lucky event
D) allocation

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

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Question 42

Multiple Choice

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Fundamental analysis determines that the price of a firm's stock is too low, given its intrinsic value. The information used in the analysis is available to all market participants, yet the price does not seem to react. The stock does not trade on a major exchange. What concept might explain the ability to produce excess returns on this stock?

A) January effect
B) neglected-firm effect
C) P/E effect
D) reversal effect

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

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Question 43

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Which of the following beliefs would not preclude charting as a method of portfolio management?

DeBondt and Thaler (1985) found that the poorest-performing stocks in one time period experienced ________ performance in the following period and that the best-performing stocks in one time period experienced ________ performance in the following time period.

According to results by Seyhun, ________.

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

A technical analyst is most likely to be affiliated with which investment philosophy?

When testing mutual fund performance over time, one must be careful of ________, which means that a certain percentage of poorer-performing funds fail over time, making the performance of remaining funds seem more consistent over time.

Proponents of the EMH think technical analysts ________.

Keown and Pinkerton (1981) found cumulative abnormal returns begin roughly _______days prior to the announcement of a takeover.

The primary objective of fundamental analysis is to identify ________.

Which Fidelity Magellan portfolio manager is often referenced as an exception to the general conclusion of efficient markets?

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

The term random walk is used in investments to refer to ________.

According to results by Seyhun, the main reason that investors cannot earn excess returns by following inside trades after they become public is that ________.

Which of the following is not a method employed by followers of technical analysis?

According to 1968 research by Ball and Brown, securities markets fully adjust to earnings announcements ________.

The Fama and French evidence that high book-to-market firms outperform low book-to-market firms even after adjusting for beta means that ________.

When stock returns exhibit positive serial correlation, this means that ________ returns tend to follow ________ returns.

Approximately what percentage of assets in equity mutual funds were indexed in 2017?