INVESTMENTS-CONNECT PLUS ACCESS
11th Edition
ISBN: 2810022611546
Author: Bodie
Publisher: MCG
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Chapter 12, Problem 2PS
Summary Introduction
To determine: Security prices might be set efficiently.
Introduction:
The
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Even if behavioral biases do not affect equilibrium asset prices, why might it still be important for investors to be aware of them?
If the weakest form of market efficiency holds, then security prices reflect all information found in past prices and volume. Thus, traditional "technical analysis" will not work.
Group of answer choices
True
False
Mark thinks that there is an interesting paradox of the efficient market hypothesis. If the market believes that prices reflect all information, investors will stop seeking mispriced securities. This may lead to more mispriced stocks and more inefficiency. However, if the market believes that inefficiency still exists, the competition of trying to be the first to find mispriced securities will make markets more efficient. Do you agree with Mark? Why or why not? Please briefly comment.
Chapter 12 Solutions
INVESTMENTS-CONNECT PLUS ACCESS
Ch. 12 - Prob. 1PSCh. 12 - Prob. 2PSCh. 12 - Prob. 3PSCh. 12 - Prob. 4PSCh. 12 - Prob. 5PSCh. 12 - Prob. 6PSCh. 12 - Prob. 7PSCh. 12 - Prob. 8PSCh. 12 - Prob. 9PSCh. 12 - Prob. 10PS
Ch. 12 - Prob. 11PSCh. 12 - Prob. 12PSCh. 12 - Prob. 13PSCh. 12 - Prob. 14PSCh. 12 - Prob. 15PSCh. 12 - Prob. 16PSCh. 12 - Prob. 17PSCh. 12 - Prob. 18PSCh. 12 - Prob. 19PSCh. 12 - Prob. 20PSCh. 12 - Prob. 21PSCh. 12 - Prob. 22PSCh. 12 - Prob. 23PSCh. 12 - Prob. 24PSCh. 12 - Prob. 25PSCh. 12 - Prob. 1CPCh. 12 - Prob. 2CPCh. 12 - Prob. 3CPCh. 12 - Prob. 4CPCh. 12 - Prob. 5CP
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- What sorts of factors might limit the ability of rational investors to take advantage of any “pricing errors” that result from the actions of “behavioral investors”?arrow_forwardIf the security market is efficient in the strong form, then _____. Group of answer choices a. it is impossible to consistently outperform the market by using technical analysis, which tries to find security mispricing by analyzing historical security price data b. it is impossible to consistently outperform the market by using fundamental analysis, which tries to find security mispricing by analyzing non-price public information c. it is impossible to consistently outperform the market by using inside information d. it is impossible to consistently outperform the market by using technical analysis, fundamental analysis or inside informationarrow_forwardIn a few sentences, answer the following question as completely as you can. We routinely assume that investors are “risk-averse return-seekers” (i.e., they like returns and dislike risk). If so, why do we contend that only systematic risk is important? Alternatively, why is total risk, on its own, not important to investors?arrow_forward
- If all investors believe that the market is efficient, could that eventually lead to less efficiency in the market? Explain with an example.arrow_forwardWhich 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.arrow_forwardThe theory is based on the notion that investors act rationally and consider all available information in the decision-making process, and hence investment markets are efficient, reflecting all available information in security prices. This describes Select one: a. conventional finance. b. irrational investors. c. behavioral finance. d. cognitive errors. e. None of the thesearrow_forward
- Which of the following statements are true if the efficient market hypothesis holds?a. It implies that future events can be forecast with perfect accuracy.b. It implies that prices reflect all available information.c. It implies that security prices change for no discernible reason.d. It implies that prices do not fluctuate.arrow_forwardIn the presence of the ‘free rider’ problem ,private markets will always produce inefficient outcomes. True or false, and explainarrow_forwardWhat would happen to market efficiency if all investors attempted to follow a passive strategy?arrow_forward
- Advocates of the efficient market hypothesis would agree that it is virtually impossible for any investor to consistenrly outperform the market (T/F)arrow_forwardWhat is investor overreaction? Which behavioral bias is primarily responsible for this effect, and how does this bias result in this effect? How does overreaction decrease an investors returns?arrow_forwardAn efficient market is one in which no one can profit from having a better information than the rest. Is the statement true or false or uncertainarrow_forward
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