Chapter 12. The Efficient Market Hypothesis. Random Walk and the EMH. Random Walk - stock prices are random Actually submartingale Expected price is positive over time Positive trend and random about the trend. Random Walk with Positive Trend. Security Prices. Time.
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The Efficient Market Hypothesis
Random Walk with Positive Trend
Even if the market is efficient a role exists for portfolio management
According to the efficient market hypothesis, __________.A) positive alphas on stocks will disappear quicklyB) low beta stocks are consistently underpricedC) high beta stocks are consistently overpricedD) None of the above answers is correctAnswer A
Research on the strong form of market efficiency shows that ________ are generally able to achieve superior returns.A) members of the SECB) the majority of professional mutual fund managersC) corporate insidersD) stock brokersAnswer C
The ______________ of the efficient market hypothesis suggests that there is little or nothing to be gained from studying past stock price trends.A) weak formB) semi-weak formC) semi-strong formD) strong form Answer A
Which one of the following forms of market efficiency is violated if you can earn excess return by buying stocks of firms which make merger announcements?A) Weak form.B) Semi-weak form.C) Semi-strong form.D) Strong form.Answer C
The efficient market hypothesis suggests that ___________.A) no investors can earn a positive return at any point in time.B) no investors can earn a positive return persistently over time.C) no investors can earn an excess return at any point in time.D) no investors can earn an excess return persistently over timeAnswer D
The January effect of small firms is greatest ________.A) in leap yearsB) in presidential election yearsC) late in the monthD) early in the monthAnswer D
Which of the following has(have) been considered market anomalies?A) the reversal effectB) the book-to-market effectC) the small-firm January effectD) All of the above have been considered market anomalies Answer D
Empirical evidence supporting the semi-strong form market efficiency suggests that investors should follow ____________ investment strategy.A) a passiveB) an activeC) a conservativeD) an aggressiveAnswer A