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COMM 385 Chapter 9
Terms in this set (28)
A hybrid strategy is one where the investor
maintains a passive core and augments the position with an actively managed portfolio.
Proponents of the EMH typically advocate
investing in an index fund
a passive investment strategy
If you believe in the reversal effect, you should
buy stocks this period that performed poorly last period
__________ focus more on past price movements of a firm's stock than on the underlying determinants of future profitability.
___________ the return on a stock beyond what would be predicted from market movements alone.
An excess economic return is or An abnormal return is
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
A common strategy for passive management is ____________.
creating an index fund
Arbel (1985) found that
the January effect was highest for neglected firms.
Researchers have found that most of the small firm effect occurs
Malkiel (1995) calculated that the average alphas, or abnormal returns, on a large sample of mutual
funds between 1972 and 1991 were
statistically indistinguishable from zero.
A study by Ball, Kothari and Shanken (1995) examines the reversal effect and finds
A. the reversal effect seems to be concentrated in low-priced shares.
B.the reversal effect is substantially diminished when portfolios are formed based on mid-year
performance rather than December results.
C. the risk-adjusted return from trying to exploit the reversal effect is effectively zero.
Fama and Blume (1966) showed that investors could _________ by exploiting filter rules.
not earn abnormal returns above transaction costs
Basu (1977, 1983) found that firms with low P/E ratios
earned higher average returns than firms with high P/E ratios
Jaffe (1974) found that stock prices _______ after insiders intensively bought shares while a later
study by Seyhun (1986) found _________.
increased, buying on insider trading did not yield abnormal returns.
Banz (1981) found that, on average, the risk-adjusted returns of small firms
were higher than the risk-adjusted returns of large firms
Proponents of the EMH think technical analysts
are wasting their time
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.
Fama and French (1988) found that the return on the aggregate stock market _________
is higher when the dividend yield is high
A market decline of 23% on a day when there is no significant macroeconomic event ______
consistent with the EMH because ________.
would not be, because it was not a clear response to macroeconomic news.
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
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
The weak form of the efficient market hypothesis contradicts
technical analysis, but is silent on the possibility of successful fundamental analysis.
Two basic assumptions of technical analysis are that security prices adjust
gradually to new information and market prices are determined by the interaction of supply and
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).
In an efficient market the correlation coefficient between stock returns for two non-overlapping time
periods should be
If stock prices follow a random walk
price changes are random.
The main difference between the three forms of market efficiency is that
the definition of information differs.
THIS SET IS OFTEN IN FOLDERS WITH...
COMM 385 Chapter 8
Finance Exam 3 CHPT 9,10
fin325 ch 9
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