Chapter 6
1. Which of the following would be inconsistent with an efficient market?
a. Information arrives randomly and independently.
b. Stock prices adjust rapidly to new information.
c. Price changes are independent.
d. Price changes are random.
e. Price adjustments are biased.
ANS: E
2. The weak form of the efficient market hypothesis states that
a. Successive price changes are dependent.
b. Successive price changes are independent.
c. Successive price changes are biased.
d. Successive price changes depend on trading volume.
e. Properly specified trading rules are of value.
ANS: B
3. Which statement is true concerning alternative efficient market hypothesis?
a. The weak hypothesis encompasses the semi-strong hypothesis.
b. The weak hypothesis encompasses the strong hypothesis.
c. The semi-strong hypothesis encompasses the weak hypothesis.
d. The strong hypothesis relates only to public information.
e. None of the above (all statements are false)
ANS: C
4. If statistical tests of stock returns over time support the efficient market hypothesis the resulting
correlations should be
a. Positive.
b. Negative.
c. Zero.
d. Lagged.
e. Skewed.
ANS: C
5. Which of the following has not been involved in a direct test of the semi-strong form of the
efficient market hypothesis?
a. Stock splits
b. New Issues
c. Exchange listing
d. Accounting changes
e. NYSE Specialists’ returns
ANS: E
6. The opportunity to take advantage of the downward pressure on stock prices that result from end-
of-the-year tax selling is known as
a. The End-of-the-Year Effect.
b. The December Anomaly.
c. The End-of-the-Year Anomaly.
d. The January Anomaly.
e. The New Years Anomaly.
ANS: D
7. The performance of four major groups of investors has been studied in connection with
tests of the strong-form of the efficient market hypothesis. These include all of the following
except
a. Professional money managers.
b. Stock exchange specialists.
c. Securities Exchange officers.
d. Security analysts.
e. Corporate insiders.
ANS: C
8. The implication of efficient capital markets and a lack of superior analysts have led to the
