The value anomaly shows that Question 2 options: The returns on different stock portfolios of firms sorted by their book-to- market ratio cannot be explained by the standard CAPM. Firms with high book-to-market ratios have higher returns despite the fact that they do not have higher betas. The returns on different stock portfolios of firms sorted by their market-to- book ratio are well explained by the standard CAPM. The returns on different stock portfolios of firms sorted by their market-to- book ratio cannot be explained by the standard CAPM. Firms with high book-to-market ratios have higher returns despite the fact that they have higher betas. The returns on different stock portfolios of firms sorted by their market-to- book ratio cannot be explained by the standard CAPM. Firms with high book-to-market ratios have lower returns despite the fact that they have higher betas.

The value anomaly shows that Question 2 options: The returns on different stock portfolios of firms sorted by their book-to- market ratio cannot be explained by the standard CAPM. Firms with high book-to-market ratios have higher returns despite the fact that they do not have higher betas. The returns on different stock portfolios of firms sorted by their market-to- book ratio are well explained by the standard CAPM. The returns on different stock portfolios of firms sorted by their market-to- book ratio cannot be explained by the standard CAPM. Firms with high book-to-market ratios have higher returns despite the fact that they have higher betas. The returns on different stock portfolios of firms sorted by their market-to- book ratio cannot be explained by the standard CAPM. Firms with high book-to-market ratios have lower returns despite the fact that they have higher betas.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 12QTD

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When estimating the cost of equity by use of the CAPM, three potential problems are (1) whether to use long-term or short-term rates for rRF, (2) whether or not the historical beta is the beta that investors use when evaluating the stock, and (3) how to measure the market risk premium, RPM. These problems leave us unsure of the true value of rs. a. true b. false
Which of the following is true for testing stock price predictability? Select one: a. All of the options O b. When considering an RW without drift and the Cowles-Jones test, the probability of observing an increase or a decrease in price is no longer 0.5 O c. None of the options O d. The test statistic of the Volatility Ratio test is enough for us to be able to draw significant conclusions O e. The Box-Pierce g-test is based on the fact that for RW3 processes there should be no autocorrelation between the returns
Suppose we observe from market data that, for a given non-dividend paying stock, F, ± Soer. What might explain the inequality in this relationship (i.e. why don't we observe Fo = Soe"T) if markets are efficient? Hint: try to identify real-world market frictions that might cause cases where Fo + Soe™" does not result in arbitrage opportunities
The finding that trading on analysts stock recommendations generates an abnormal return (alpha) is:Group of answer choices a) a violation of weak form market efficiency. b) a violation of semi-strong form market efficiency. c) consistent with CAPM. d) consistent with market efficiency.
Which of the following arguments has been put forward as a criticism of using the PEG ratio as the basis of an investment strategy? Select one: a. The PEG ratio buys growth stocks without any consideration of their price. b. Stocks with a low PEG ratio are all large cap stocks. c. Stocks with a low PEG ratio have been shown to generate lower stock returns. d. Stocks with a low PEG ratio also have a positively skewed distribution of returns. e. Stocks with a low PEG ratio are shown to be riskier.
Suppose we observe from market data that, for a given non-dividend paying stock, F, ± Soer. What might explain the inequality in this relationship (i.e. why don't we observe Fo = Soer") if markets are efficient? Hint: try to identify real-world market frictions that might cause cases where F, + S,e! does not result in arbitrage opportunities rT
“There is no alpha in an efficient market”. In light of this statement, briefly describe market efficiency and its forms and why an investor may not be able to locate stocks that provide a positive alpha (undervalued stocks) consistently
The SML shows the return needed given risk as measured by beta. And there are situations where a stock might be mispriced relative to CAPM. Given the relationship with the security mark line (SML), if a stock is properly priced relative to CAPM , where would it plot on the graph relative to the SML? A. on the Y-axis B. on the security market line C. below the security market line D. above the security market line
Volatility smile” is referred to as evidence against the Black-Scholes model. Why is that? A) Black-Scholes model assumes that different options on a given stock have different values for implied volatility b.) Volatility of returns on one and the same stock, over one and the same future period of time, can only take one value C) Black-Scholes model generates option premium close to the observed premium if the observed stock volatility is used
All of the following statements about stock price are correct EXCEPT In the short run (i.e., a static viewpoint), stock price reflects the weighted average opinions of all investors in the market. In the long run (i.e., a dynamic viewpoint), stock price is determined by the opinions of marginal investors in the market. O While different investors may have different opinions about the value of the same stock, there is only one price for the same stock. In an efficient market, the stock price may deviate from marginal investors' valuation for a prolonged period but eventually the price will converge to the value.
Which of the following statements about 'beta' is correct? Is a measure of stand-alone risk. A low beta means that a stock is more volatile than the market Is a measure of a stock's volatility relative to the market. OA high beta means that a stock is less volatile than the market
a. Describe how the Black-Scholes Call option formula can be used to make an inference about the variance of the return on a stock. b . Explain how the earnings and dividends approaches to stock valuation are equivalent.

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	The returns on different stock portfolios of firms sorted by their book-to- market ratio cannot be explained by the standard CAPM. Firms with high book-to-market ratios have higher returns despite the fact that they do not have higher betas.
	The returns on different stock portfolios of firms sorted by their market-to- book ratio are well explained by the standard CAPM.
	The returns on different stock portfolios of firms sorted by their market-to- book ratio cannot be explained by the standard CAPM. Firms with high book-to-market ratios have higher returns despite the fact that they have higher betas.
	The returns on different stock portfolios of firms sorted by their market-to- book ratio cannot be explained by the standard CAPM. Firms with high book-to-market ratios have lower returns despite the fact that they have higher betas.