(完整word版)投资学题库
Chapter 11
The Efficient Market Hypothesis Multiple Choice Questions
1. If you believe in the ________ form of the EMH, you believe that stock prices reflect all relevant information including historical stock prices and current public information about the firm, but not information that is available only to insiders.
A. Semistrong
2. When Maurice Kendall examined the patterns of stock returns in 1953 he concluded that the stock market was __________. Now, these random price movements are believed to be
_________.
A. inefficient; the effect of a well-functioning market
3. The stock market follows a __________.
B. Submartingale
4. A hybrid strategy is one where the investor
D. maintains a passive core and augments the position with an actively managed portfolio.
5. The difference between a random walk and a submartingale is the expected price change in a random walk is ______ and the expected price change for a submartingale is ______.
D. zero; positive
6.6. The difference between a random walk and a submartingale is the expected price change in
a random walk is ______ and the expected price change for a submartingale is ______.
D. zero; positive
7. Proponents of the EMH typically advocate
B. investing in an index fund.
C. a passive investment strategy.
E. B and C
8. Proponents of the EMH typically advocate
C. a passive investment strategy.
9. If you believe in the _______ form of the EMH, you believe that stock prices reflect all information that can be derived by examining market trading data such as the history of past stock prices, trading volume or short interest.
C. Weak
10. If you believe in the _________ form of the EMH, you believe that stock prices reflect all available information, including information that is available only to insiders.
B. strong
11. If you believe in the reversal effect, you should
C. buy stocks this period that performed poorly last period.
12. __________ focus more on past price movements of a firm's stock than on the underlying determinants of future profitability.
D. Technical analysts
13. _________ above which it is difficult for the market to rise.
B. Resistance level is a value
14. _________ below which it is difficult for the market to fall.
C. Support level is a value
15. ___________ the return on a stock beyond what would be predicted from market movements alone.
A. An excess economic return is
C. An abnormal return is
E. A and C
16. The debate over whether markets are efficient will probably never be resolved because of ________.
A. the lucky event issue.
B. the magnitude issue.
C. the selection bias issue.
D. all of the above.
17. A common strategy for passive management is ____________.
A. creating an index fund
18. Arbel (1985) found that
A. the January effect was highest for neglected firms.
19. Researchers have found that most of the small firm effect occurs
D. in January.
20. Basu (1977, 1983) found that firms with low P/E ratios
A. earned higher average returns than firms with high P/E ratios.
21. Jaffe (1974) found that stock prices _________ after insiders intensively bought shares.
C. increased
22. Banz (1981) found that, on average, the risk-adjusted returns of small firms
A. were higher than the risk-adjusted returns of large firms.
23. Proponents of the EMH think technical analysts
E. are wasting their time.
24. Studies of positive earnings surprises have shown that there is
A. a positive abnormal return on the day positive earnings surprises are announced.
B. a positive drift in the stock price on the days following the earnings surprise announcement.
D. both A and B are true.
25. Studies of negative earnings surprises have shown that there is
A. a negative abnormal return on the day negative earnings surprises are announced.
B. a positive drift in the stock price on the days following the earnings surprise announcement.
D. both A and B are true.
26. Studies of stock price reactions to news are called
B. event studies.
27. On November 22, 2005 the stock price of Walmart was $39.50 and the retailer stock index was 600.30. On November 25, 2005 the stock price of Walmart was $40.25 and the retailer stock index was 605.20. Consider the ratio of Walmart to the retailer index on November 22 and November 25. Walmart is _______ the retail industry and technical analysts who follow relative strength would advise _______ the stock.
A. outperforming, buying
28. Work by Amihud and Mendelson (1986,1991)
A. argues that investors will demand a rate of return premium to invest in less liquid stocks.
B. may help explain the small firm effect.
C. may be related to the neglected firm effect.
E. A, B, and C.
29. Fama and French (1992) found that the stocks of firms within the highest decile of market/book ratios had average monthly returns of _______ while the stocks of firms within the lowest decile of market/book ratios had average monthly returns of ________.
C. less than 1%, greater than 1%
30. A market decline of 23% on a day when there is no significant macroeconomic event
______ consistent with the EMH because ________.
D. would not be, it was not a clear response to macroeconomic news.
31. In an efficient market, __________.
A. security prices react quickly to new information
B. security prices are seldom far above or below their justified levels
C. security analysts will not enable investors to realize superior returns consistently
E. A, B, and C
32. The weak form of the efficient market hypothesis asserts that
B. future changes in stock prices cannot be predicted from past prices.
C. technicians cannot expect to outperform the market.
E. B and C
33. A support level is the price range at which a technical analyst would expect the
C. demand for a stock to increase substantially.
34. A finding that _________ would provide evidence against the semistrong form of the efficient market theory.
A. low P/E stocks tend to have positive abnormal returns
C. one can consistently outperform the market by adopting the contrarian approach exemplified by the reversals phenomenon
E. A and C
35. The weak form of the efficient market hypothesis contradicts
D. technical analysis, but is silent on the possibility of successful fundamental analysis.
36. Two basic assumptions of technical analysis are that security prices adjust
C. gradually to new information and market prices are determined by the interaction of supply and demand.
37. Cumulative abnormal returns (CAR)
A. are used in event studies.
B. are better measures of security returns due to firm-specific events than are abnormal returns (AR).
D. A and B.
38. Studies of mutual fund performance
A. indicate that one should not randomly select a mutual fund.
B. indicate that historical performance is not necessarily indicative of future performance.
D. A and B.
39. The likelihood of an investment newsletter's successfully predicting the direction of the market for three consecutive years by chance should be
C. between 10% and 25%.
40. In an efficient market the correlation coefficient between stock returns for two
non-overlapping time periods should be
C. zero.
41. The weather report says that a devastating and unexpected freeze is expected to hit Florida tonight, during the peak of the citrus harvest. In an efficient market one would expect the price of Florida Orange's stock to
A. drop immediately.
42. Matthews Corporation has a beta of 1.2. The annualized market return yesterday was 13%, and the risk-free rate is currently 5%. You observe that Matthews had an annualized return yesterday of 17%. Assuming that markets are efficient, this suggests that
B. good news about Matthews was announced yesterday.
43. Nicholas Manufacturing just announced yesterday that its 4th quarter earnings will be 10% higher than last year's 4th quarter. You observe that Nicholas had an abnormal return of -1.2% yesterday. This suggests that
C. investors expected the earnings increase to be larger than what was actually announced.
44. When Maurice Kendall first examined stock price patterns in 1953, he found that
B. there were no predictable patterns in stock prices.
45. If stock prices follow a random walk
D. price changes are random.
46. The main difference between the three forms of market efficiency is that
D. the definition of information differs.
47. Chartists practice
A. technical analysis.
48. Which of the following are used by fundamental analysts to determine proper stock prices?
I) trendlines
II) earnings
III) dividend prospects
IV) expectations of future interest rates
V) resistance levels
C. II, III, and IV
49. According to proponents of the efficient market hypothesis, the best strategy for a small investor with a portfolio worth $40,000 is probably to
E. invest in mutual funds.
50. Which of the following are investment superstars who have consistently shown superior performance?
I) Warren Buffet
II) Phoebe Buffet
III) Peter Lynch
IV) Merrill Lynch
V) Jimmy Buffet
C. I and III
51. Google has a beta of 1.0. The annualized market return yesterday was 11%, and the
risk-free rate is currently 5%. You observe that Google had an annualized return yesterday of 14%. Assuming that markets are efficient, this suggests that
B. good news about Google was announced yesterday.
52. Music Doctors has a beta of 2.25. The annualized market return yesterday was 12%, and the risk-free rate is currently 4%. You observe that Music Doctors had an annualized return yesterday of 15%. Assuming that markets are efficient, this suggests that
A. bad news about Music Doctors was announced yesterday.
53. QQAG has a beta of 1.7. The annualized market return yesterday was 13%, and the risk-free rate is currently 3%. You observe that QQAG had an annualized return yesterday of 20%. Assuming that markets are efficient, this suggests that
C. no significant news about QQAG was announced yesterday.
54. QQAG just announced yesterday that its 4th quarter earnings will be 35% higher than last year's 4th quarter. You observe that QQAG had an abnormal return of -1.7% yesterday. This suggests that
C. investors expected the earnings increase to be larger than what was actually announced.
55. LJP Corporation just announced yesterday that it would undertake an international joint venture. You observe that LJP had an abnormal return of 3% yesterday. This suggests that
D. investors view the international joint venture as good news.
56. Music Doctors just announced yesterday that its 1st quarter sales were 35% higher than last year's 1st quarter. You observe that Music Doctors had an abnormal return of -2% yesterday. This suggests that
C. investors expected the sales increase to be larger than what was actually announced.
57. The Food and Drug Administration (FDA) just announced yesterday that they would approve a new cancer-fighting drug from King. You observe that King had an abnormal return of 0% yesterday. This suggests that
D. the approval was already anticipated by the market
58. Your professor finds a stock-trading rule that generates excess risk-adjusted returns. Instead of publishing the results, she keeps the trading rule to herself. This is most closely associated with ________.
B. selection bias
59. At freshman orientation, 1,500 students are asked to flip a coin 20 times. One student is crowned the winner (tossed 20 heads). This is most closely associated with ________.
D. the lucky event issue
60. Sehun (1986) finds that the practice of monitoring insider trade disclosures, and trading on that information, would be ________.
E. not sufficiently profitable to cover trading costs
61. If you believe in the reversal effect, you should
C. sell stocks this period that performed well last period.
62. Patell and Woflson (1984) report that most of the stock price response to corporate dividend or earnings announcements occurs within ____________ of the announcement.
C. 2 hours
Short Answer Questions
63. Discuss the various forms of market efficiency. Include in your discussion the information sets involved in each form and the relationships across information sets and across forms of market efficiency. Also discuss the implications for the various forms of market efficiency for the various types of securities' analysts.
The weak form of the efficient markets hypothesis (EMH) states that stock prices immediately reflect market data. Market data refers to stock prices and trading volume. Technicians attempt to predict future stock prices based on historic stock price movements. Thus, if the weak form of the EMH holds, the work of the technician is of no value.
The semistrong form of the EMH states that stock prices include all public information. This public information includes market data and all other publicly available information, such as financial statements, and all information reported in the press relevant to the firm. Thus, market information is a subset of all public information. As a result, if the semistrong form of the EMH holds, the weak form must hold also. If the semistrong form holds, then the fundamentalist, who attempts to identify undervalued securities by analyzing public information, is unlikely to do so consistently over time. In fact, the work of the fundamentalist may make the markets even more efficient!
The strong form of the EMH states that all information (public and private) is immediately reflected in stock prices. Public information is a subset of all information, thus if the strong form of the EMH holds, the semistrong form must hold also. The strong form of EMH states that even with inside (legal or illegal) information, one cannot expect to outperform the market consistently over time.
Studies have shown the weak form to hold, when transactions costs are considered. Studies have shown the semistrong form to hold in general, although some anomalies have been observed. Studies have shown that some insiders (specialists, major shareholders, major corporate officers) do outperform the market.
Feedback: The purpose of this question is to assure that the student understands the interrelationships across different forms of the EMH, across the information sets, and the implications of each form for different types of analysts.
64. What is an event study? It is a test of what form of market efficiency? Discuss the process of conducting an event study, including the best variable(s) to observe as tests of market efficiency.
A event study is an empirical test which allows the researcher to assess the impact of a particular event on a firm's stock price. To do so, one often uses the index model and estimates e t, the residual term which measures the firm-specific component of the stock's return. This variable is the difference between the return the stock would ordinarily earn for a given level of market performance and the actual rate of return on the stock. This measure is often referred to as the abnormal return of the stock. However, it is very difficult to identify the exact point in time that an event becomes public information; thus, the better measure is the cumulative abnormal return, which is the sum of abnormal returns over a period of time (a window around the event date).
This technique may be used to study the effect of any public event on a firm's stock price; thus, this technique is a test of the semistrong form of the EMH.
Feedback: The rationale for this question is to ascertain if the student understands the methodology most commonly used as a test of the semistrong form of market efficiency.
65. Discuss the small firm effect, the neglected firm effect, and the January effect, the tax effect and how the four effects may be related.
Studies have shown that small firms earn a risk-adjusted rate of return greater than that of larger firms. Additional studies have shown that firms that are not followed by analysts (neglected firms) also have a risk-adjusted return greater than that of larger firms. However, the neglected firms tend to be small firms; thus, the neglected firm effect may be a manifestation of the small firm effect. Finally, studies have shown that returns in January tend to be higher than in other months of the year. This effect has been shown to persist consistently over the years. However, the January effect may be the tax effect, as investors may have sold stocks with losses in December for tax purposes and reinvested in January. Small firms (and neglected firms) would tend to be more affected by this increased buying than larger firms, as small firms tend to sell for lower prices.
Feedback: The purpose of this question is to reinforce the interrelationships, that "effects" may not always be independent and thus readily identifiable. Also these effects are widely discussed in the financial press, and the January effect appears to be quite persistent.
66. Why might the degree of market efficiency differ across various markets? State three reasons why this might occur and explain each reason briefly.
1. Market efficiency depends on information being essentially free and costless to market participants. In the U.S. markets this is the case to a large extent. The U.S. markets are well developed and professional analysts often follow securities. Information is available on television, in the press, and on the Internet. The opposite may be true in other markets, such as those of developing countries, where there are fewer or no analysts and few market participants with these resources.
2. Accounting disclosure requirements are different across markets. In the U.S. firms must meet SEC requirements to be publicly traded. In other countries the requirements may be different or nonexistent. This has implications about the ease with which analysts can evaluate the company to determine its proper value.
3. Markets for "neglected" stocks may be less efficient than markets for stocks that are heavily followed by analysts. If analysts feel that it is not worthwhile to give their attention to particular stocks then ample information about these stocks will not be readily available to investors.
Feedback: This question leads the student to look at some of the fundamental reasons for market efficiency and why there may be differences among markets with regard to the reasons. Alternative answers are possible.
67. With regard to market efficiency, what is meant by the term "anomaly"? Give three examples of market anomalies and explain why each is considered to be an anomaly. Anomalies are patterns that should not exist if the market is truly efficient. Investors might be able to make abnormal profits by exploiting the anomalies, which doesn't make sense in an efficient market.
Possible examples include, but are not limited to, the following.
1.the small-firm effect - average annual returns are consistently higher for small-firm portfolios, even when adjusted for risk by using the CAPM.
2.the January effect - the small-firm effect occurs virtually entirely in January.
3.the neglected-firm effect - small firms tend to be ignored by large institutional traders and stock analysts. This lack of monitoring makes them riskier and they earn higher risk-adjusted returns. The January effect is largest for neglected firms.
4.the liquidity effect - investors demand a return premium to invest in less-liquid stocks. This is related to the small-firm effect and the neglected-firm effect. These stocks tend to earn high risk-adjusted rates of return.
5.book-to-market ratios - firms with the higher book-to-market-value ratios have higher
risk-adjusted returns, suggesting that they are underpriced. When combined with the firm-size factor, this ratio explained returns better than systematic risk as measured by beta.
the reversal effect - stocks that have performed best in the recent past seem to underperform the rest of the market in the following periods, and vice versa. Other studies indicated that this effect might be an illusion. These studies used portfolios formed mid-year rather than in December and considered the liquidity effect.
Investors should not be able to earn excess returns by taking advantage of any of these. The market should adjust prices to their proper levels. But these things have been documented to occur repeatedly.
Feedback: This question tests whether the student grasps the basic concept of anomalies and allows some choice in explaining some of them.