Ch 7 Quiz - Quiz 10 The Stock Market and Efficient Markets...

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Quiz 10 The Stock Market and Efficient Markets, Ch7 True/False 1. Expectations that are formed solely on the basis of past information are know as rational expectations. FALSE- adaptive expectations 2. The theory of rational expectations argues that optimal forecasts need not be perfectly accurate. TRUE 3. An important implication of rational expectation theory is that when there is a change in the way a variable behaves, the way expectations of this variable are formed will change as well. TRUE 4. If the optimal forecast of a return on a financial asset exceeds its equilibrium return, the situation is called an unexploited profit opportunity. TRUE 5. In an efficient market, all unexploited profit opportunities will be eliminated. TRUE 6. Everyone in a financial market must be well informed about a security if the market is to be considered efficient. FALSE- the person with the knowledge sets the price 7. The efficient markets theory suggests that published reports of financial analysts can guarantee that individuals who use this information will outperform the market. FALSE 8. The overwhelming majority of statistical studies indicate that financial analysts do indeed pick financial portfolios that outperform the market average. FALSE- Statistically impossible. No better than average
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Ch 7 Quiz - Quiz 10 The Stock Market and Efficient Markets...

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