978-0133427073 Test Bank Chapter 6 Part 2

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30) Which of the following does not weaken the efficient markets hypothesis?

A) Mean reversion

B) Success of buy-and-hold strategy

C) January effect

D) Excessive volatility

31) An important lesson from the Black Monday Crash of 1987 and the tech crash of 2000 is that

A) factors other than market fundamentals affect stock prices.

B) the strong version of the efficient market hypothesis, that stock prices reflect the true

fundamental value of securities, is correct.

C) market psychology has little if any effect on stock prices.

D) there is no such thing as a rational bubble.

32) An investor gains from short selling by ________ and then later ________.

A) buying a stock; selling it at a higher price

B) selling a stock; buying it back at a lower price

C) buying a stock; selling it at a lower price

D) selling a stock; buying it back at a higher price

33) Which of the following is an insight from behavioral finance?

A) The price of securities fully reflects all available information.

B) Investor overconfidence leads to high trading volumes.

C) The optimal forecast of a security’s return equals the security’s equilibrium return.

D) Investment advisers cannot consistently beat the market.

34) Which of the following is empirical evidence indicating that the efficient market hypothesis

may not always be generally applicable?

A) Small-firm effect

B) January effect

C) Market overreaction

D) All of the above

35) An arrangement with a broker to borrow stocks from them and then sell it in the market, with

the hope that they earn a profit by buying the stock back again after it has fallen in price is called

A) behavioral finance.

B) short sales.

C) smart money.

D) random walk.

36) Evidence in favor of market efficiency includes

A) performance of investment analysts and mutual funds.

B) whether stock prices reflect publicly available information.

C) the random-walk behavior of stock prices.

D) all of the above.

37) Evidence against market efficiency does not include

A) the small-firm effect.

B) technical analysis.

C) excessive volatility.

D) mean reversion.

38) Evidence in favor of market efficiency does not include

A) random-walk behavior.

B) technical analysis.

C) performance of investment analysts and mutual funds.

D) the January effect.

39) The elimination of a riskless profit opportunity in a market is called

A) the efficient market hypothesis.

B) random walk.

C) arbitrage.

D) market fundamentals.

40) According to the strong view of the efficient markets hypothesis, security prices reflect

________ and so financial markets are efficient.

A) market fundamentals

B) rational expectations

C) momentum effects

D) current market trends

41) When a market bubble occurs, ________.

A) prices of assets rise well above their fundamental values

B) a “thin layer” of trading masks true market movements

C) market fundamentals and actual security prices converge

D) prices of assets fluctuate rapidly above and below market fundamentals

1) Evidence that stock prices sometimes fall when a firm announces good news contradicts the

efficient market hypothesis.

2) If the security markets are truly efficient, there is no need to pay for help selecting securities.

3) Evidence that a mutual fund has performed extraordinarily well in the past contradicts the

efficient market hypothesis.

4) Technical analysts look at historical prices for information to project future prices.

5) The evidence suggests technical analysts are not superior stock pickers.

6) If the markets are efficient, the optimal investment strategy will be to buy and hold so as to

minimize transaction costs.

7) In an efficient market, abnormal returns are not possible, even using inside information.

8) “Short selling” refers to the practice of buying a stock and holding it for only a short time

before selling it.

9) Loss aversion means the unhappiness a person feels when he or she suffers a monetary loss

exceeds the happiness the same person experiences from receiving a monetary gain of the same

amount.

10) It is probably a good use of an investor’s time to watch as many shows featuring technical

analysts as possible.

11) Having performed well in the past indicates that an investment adviser or a mutual fund will

perform well in the future.

12) Technical analysis is a popular technique used to predict stock prices by studying past stock

price data and searching for patterns such as trends and regular cycles.