Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 13, Problem 23PS
Summary Introduction
To discuss: The procedures and rules to differentiate bubbles from normal ups and downs of stock prices.
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When all investors have the same information and care only about expected return and volatility; if new information arrives about one stock, can this information affect the price and return of other stocks?
Which of the following does NOT correctly complete this
sentence: In general, the link between an information
announcement and the stock price is that
Select one:
O a. the stock price will not change if the announcement
provided only anticipated information.
O b. if markets are efficient in the semi-strong form, then the
market will react rapidly to the new information.
O c. the expected stock return will change if the
announcement contains a surprise component.
O d. in order for the price of the stock to change, the
announcement must be relevant to that particular stock
and must be unanticipated.
O e. only announcements that have already been discounted
will affect the stock price.
Chapter 13 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 13 - Prob. 1PSCh. 13 - Prob. 2PSCh. 13 - Market efficiency True or false? The...Ch. 13 - Prob. 4PSCh. 13 - Prob. 5PSCh. 13 - Behavioral finance True or false? a. Most managers...Ch. 13 - Prob. 7PSCh. 13 - Prob. 8PSCh. 13 - Prob. 9PSCh. 13 - Market efficiency How would you respond to the...
Ch. 13 - Market efficiency Respond to the following...Ch. 13 - Market efficiency evidence Which of the following...Ch. 13 - Prob. 13PSCh. 13 - Prob. 14PSCh. 13 - Prob. 15PSCh. 13 - Market efficiency implications What does the...Ch. 13 - Prob. 17PSCh. 13 - Prob. 18PSCh. 13 - Prob. 19PSCh. 13 - Prob. 20PSCh. 13 - Prob. 21PSCh. 13 - Prob. 22PSCh. 13 - Prob. 23PS
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- Answer the following questions: A. Explain why the price of many individual stocks still goes down, even when the overall stock market goes up. b. How can you avoid the value of your stock from going down?arrow_forwardWhat are efficient markets? Imagine if the price of a stock is going up and financial markets are efficient what can you tell us about the nature of the stock? What if the markets are inefficient then how would you react to increasing prices for a particular stock?arrow_forwardThe small firm effect refers to the observed tendency for stock prices to behave in a manner that is contrary to normal expectations. Describe this effect and discuss whether it represents sufficient information to conclude that the stock market does not operate efficiently. In formulating your response, consider: (a) what it means for the stock market to be inefficient, and (b) what role the measurement of risk plays in your conclusions about each effect.arrow_forward
- Stock prices in an inefficient market tend to adjust faster to the new public information. Select one: OTrue O Falsearrow_forwardYou buy a stock from the capital market. If the capital market is semi-strong efficient, which of the following statements is NOT correct? a. You cannot earn any abnormal returns above the required return by trading on public information. b. Past stock prices can be used to predict future stock prices. c. The technical analysis of publicly available information will not lead to any abnormal returns. d. The stock is fairly priced. e. Stock prices reflect all publicly available information.arrow_forward1. What effect does increasing inflation expectations have on the required returns of investors in common stock? 2. Explain the specific relationship between risk and reward and why this relationship must be true.arrow_forward
- Choose only one answer and explain the rationale in one or two sentences. 1. Which of the following contradicts the proposition that the stock market is weakly efficient? a. An analyst is able to identify mispriced stocks by looking at stock charts. b. Mutual funds do not outperform the market on average. c. Some investors can earn abnormal profits. d. The autocorrelations of stock returns are not significantly different from zero. 2. Which of the following would provide the strongest evidence against the semi-strong form of the efficient market theory? a. Fundamental analysis does not help generate abnormal returns. b. Technical analysis is worthless in identifying mispriced stocks. c. Stock prices response to firms’ earnings announcements gradually. d. Mutual fund managers do not beat the market on average. 3. Which of the following statements is true about the efficient market hypothesis? a. It implies a rational market. b. It implies that everyone makes zero profit from…arrow_forwardWhich 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 portfolioarrow_forwardWhich of the following is inconsistent or unrelated with the efficient market hypothesis? a. Changes in stock prices are impossible to predict from public information. b. Asset prices reflect all publicly available information about the value of the assets. c. Stock prices follow a random walk, so stock price movements should be impossible to predict. d. The stock market moves based on the changing animal spirits of investors. e. The stock market is informationally efficient. f. It is impossible to systematically beat the marketarrow_forward
- Is it reasonable to ignore IDIOSYNCRATIC RISK and care only about MARKET (SYSTEMIC) risk? What about investors who put all their money into only a single risky stock...is that prudent and can they ignore idiosyncratic risk?arrow_forwardWhich of the below best represents the idea that common stock investors generally earn higher rewards than Treasury bill investors. investors are irrational. there is a relationship between risk and return. real rates of return will be lower during periods of price stability. stocks should be avoided when inflation is low.arrow_forwardThe weak form of the efficient market hypothesis states: All information is known by all market participants. All financial markets clear. Only the corporate bond market clears. All public information is known by all market participants. Current stock prices are the best guess for future stock prices.arrow_forward
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