MC Chap011 - Chapter 11 - The Efficient Market Hypothesis...

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Chapter 11 - The Efficient Market Hypothesis Chapter 11 The Efficient Market Hypothesis Multiple Choice Questions 1. If you believe in the ________ form of the EMH, you believe that stock prices reflect all relevant information including historical stock prices and current public information about the firm, but not information that is available only to insiders. A. semistrong B. strong C. weak D. A, B, and C E. none of the above The semistrong form of EMH maintains that stock prices immediately reflect all historical and current public information, but not inside information. Difficulty: Easy 2. When Maurice Kendall examined the patterns of stock returns in 1953 he concluded that the stock market was __________. Now, these random price movements are believed to be _________. A. inefficient; the effect of a well-functioning market B. efficient; the effect of an inefficient market C. inefficient; the effect of an inefficient market D. efficient; the effect of a well-functioning market E. irrational; even more irrational than before Random price changes were originally thought to be driven by irrationality. Now, financial economists believe random price changes occur because markets are informationally efficient. Difficulty: Easy 11-1
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4. A hybrid strategy is one where the investor A. uses both fundamental and technical analysis to select stocks. B. selects the stocks of companies that specialize in alternative fuels. C. selects some actively-managed mutual funds on their own and uses an investment advisor to select other actively-managed funds. D. maintains a passive core and augments the position with an actively managed portfolio. E. none of the above.
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Chapter 11 - The Efficient Market Hypothesis A hybrid strategy is one where the investor maintains a passive core and augments the position with an actively managed portfolio. Difficulty: Easy 5. The difference between a random walk and a submartingale is the expected price change in a random walk is ______ and the expected price change for a submartingale is ______. A. positive; zero B. positive; positive C. positive; negative D. zero; positive E. zero; zero A random walk has an expected price change of zero and a submartingale has a positive expected price change. Difficulty: Easy 7. Proponents of the EMH typically advocate A. an active trading strategy. B. investing in an index fund. C. a passive investment strategy. D. A and B E. B and C Believers of market efficiency advocate passive investment strategies, and an investment in an index fund is one of the most practical passive investment strategies, especially for small investors. 11-3
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Difficulty: Easy 8. Proponents of the EMH typically advocate A. buying individual stocks on margin and trading frequently. B.
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MC Chap011 - Chapter 11 - The Efficient Market Hypothesis...

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