FIN4504 Quiz 3

Which of the following is TRUE about the strong form of market efficiency?     Insider information cannot help investors to outperform the market     This form of efficiency suggests that all public information is already reflected in current prices     Fundamental analysis can be used to identify mispriced securities     Technical analysis can be used to identify mispriced securities

Riskless, costless arbitrage is the cornerstone of the efficient market hypothesis. However, multiple unavoidable risks in securities markets inhibit arbitrage as defined in financial theory (and investment textbooks) from successfully eliminating mispricing. Please list two of these unavoidable risks and briefly explain how each limits arbitrage in practice. Use an example to make your case for each risk. View keyboard shortcuts

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1. How can investors make decisions about financial instruments that involve future payoffs? a) There is no uncertainty in market economies. b) This can be done only when the future payoffs are certain. c) Prices are determined by supply and demand which is always certain. d) Investors can use probabilities and risk measurement procedures to account for all possibilities.

Statement 1: Fundamental analysis believe that the historical performance of the stocks and markets areindications of future performanceStatement 2: Fundamental analysis works best in determining market sentiment and factor in the creation ofinvestment or trading decisionsStatement 3: Fundamental analysis will succeed if the analyst finds overlooked data in identifying undervaluedsecuritiesStatement 4: Fundamental analysis works best if all investors are logical and could separate emotions frominvestment decision.Statement 5: Fundamental analysis use charts and patterns that can suggest future activity and to measure asecurity’s intrinsic value.a. Only statements 1 and 3 are correct b. Only statements 2 and 4 are correct c. Only statements 1 and 2 are correct d. Only statements 3 and 4 are correct

Question 1- Markets can never be strong-form efficient because: a. There are too many traders in them. b. Investors are rational. c. Information is costly to acquire. d. All information is public.

9- Which of the following would be evidence that the market is not semi-strong-form efficient? Select one: a. There is a predictable relationship between successive price changes. b. Mechanical trading rules consistently outperform a "buy and hold" strategy. c. Analysis of publicly available information enables mispriced securities to be consistently identified. d. All of the above.

All of the following statements about an efficient market are correct EXCEPT: a. All financial transactions have an NPV of equal to zero b. A skilled individual may have sustainable above market returns c. The investor is compensated properly for risk borne d. The investor does not receive abnormal returns consistently

Subject :- Accouting

1. According to the efficient market hypothesis (EMH), in a perfect market, the security prices reflect the true and fair value of all the underlying securities' assets at any time. On the contrary, an inefficient market is a market whose security price at any time does not entirely reflect the value of its assets. In this form of market, traders can beat the market because they can employ strategies like arbitrage and speculation. Explain with example, the price reactions towards the bad news that indicate market is inefficient.

The weak form of the efficient market hypothesis implies that: CHOOSE ONE   A. Investors can achieve abnormal returns, on average, using technical analysis, after adjusting for transaction costs and taxes. B. Insiders, such as specialists and corporate board members, cannot achieve abnormal returns on average. C. No one can achieve abnormal returns using market information. D. NONE OF THE ABOVE

Which of the following is not a characteristic of an efficient market? Investors can frequently make profits by predicting asset market prices that are different from intrinsic values. The market value of all securities at any one instant in time fully reflect all available information. Investors act rationally. The forces of demand and supply work to maintain that the security's market price and its intrinsic value are in equilibrium.

a. Why do investors believe that low price-earnings stocks are trading cheap in the market b. An investment strategy that seeks to create a portfolio of stocks with low price-earnings ratios is believed to be able to earn excess market returns. Explain why this is not the case in perfect capital market under certainty.  c. Explain how in an imperfect capital market where there is risk, that a low price-earnings ratio strategy may be able to generate excess market returns.

Which of the following statements concerning the Efficient Market Hypothesis is correct? Select one: a. Stock market prices are based on speculation not on underlying information   b. New information that confirms investor expectations should change stock prices c. Stock prices should slowly respond when unexpected information becomes available d. Careful research can help investors earn abnormal profits e. Your return on investment should reflect the riskiness of your portfolio

Assume that the market is strong form efficient. Which of the following would provide positive abnormal returns? 1. Trading based on company's fundamentals. II. Trading based on market's characteristics (eg. volume etc). III. Insider trading. O a. II only O b. Ill only O c. II and III only O d. I and III only Oe. None of the other options is correct.

Does the efficient market hypothesis suggest that an investor can outperform the market? What effect does the arrival of information have on the market efficiency? How rapidly do security prices change in response to new information in an efficient market?

The efficient market hypothesis says that Multiple Choice   market prices reflect underlying asset values.   individual investors should not participate in the financial markets.   investors should expect to earn abnormal profits.   financial managers can accurately time stock and bond sales.   creative accounting can be used to inflate stock prices.

A reduction in the willingness of investors to take on risk would have what effect on the Security Market Line? A.no effect B.rotate the SML counter clockwise around the risk-free rate C.rotate the SML clockwise around the risk-free rate D.shift the SML upward, parallel to its previous location