羅斯公司理財題庫全集

Chapter14

EfficientCapitaIMarketsandBehavioralChailenges

MultipleChoiceQuestions

1.AnefficientcapitaImarketisoneinwhich:

A.brokeragecommissionsarezero.

B.taxesareirreIevant.

C.securitiesalwaysofferapositiverateofreturntoinvestors.

D.securitypricesareguaranteedbythe.SecuritiesandExchange

Commissiontobefair.

E.securitypricesrefIectavaiIabIeinformation.

2.ThenotionthatactuaIcapitaImarkets,suchastheNYSE,are

fairlypricediscalledthe:

A.EfficientMarketsHypothesis(EMH).

B.LawofOnePrice.

C.OpenMarketsTheorem.

D.Laissez-FaireAxiom.

E.MonopoIyPricingTheorem.

3.ThehypothesisthatmarketpricesrefIectaIIavaiIabIe

informationofeverykindiscalledformefficiency.

A.open

B.strong

C.semistrong

D.weak

E.stabIe

4.ThehypothesisthatmarketpricesrefIectaIIpubIicIyavaiIabIe

informationiscalledformefficiency.

A.open

B.strong

C.semistrong

D.weak

E.stabIe

5.ThehypothesisthatmarketpricesrefIectaIIhistoricaI

informationiscalledformefficiency.

A.open

B.strong

C.semistrong

D.weak

E.stabIe

6.Inanefficientmarket,thepriceofasecuritywill:

A.aIwaysriseimmediateIyuponthereIeaseofnewinformationwith

nofurtherpriceadjustmentsreIatedtothatinformation.

B.reacttonewinformationoveratwo-dayperiodafterwhichtime

nofurtherpriceadjustmentsrelatedtothatinformationwilloccur.

C.risesharpIywhennewinformationisfirstreIeasedandthen

deciinetoanewstabIeIeveIbythefollowingday.

D.reactimmediatelytonewinformationwithnofurtherprice

adjustmentsreIatedtothatinformation.

E.beslowtoreactforthefirstfewhoursafternewinformation

isreIeasedallowingtimeforthatinformationtobereviewedand

anaIyzed.

7.IfthefinanciaImarketsareefficient,theninvestorsshouId

expecttheirinvestmentsinthosemarketsto:

A.earnextraordinaryreturnsonaroutinebasis.

B.generaIIyhavepositivenetpresentvaIues.

C.generaIIyhavezeronetpresentvaIues.

D.producearbitrageopportunitiesonaroutinebasis.

E.producenegativereturnsonaroutinebasis.

8.Whichoneofthefollowingstatementsiscorrectconcerning

marketefficiency

A.ReaIassetmarketsaremoreefficientthanfinanciaImarkets.

B.Ifamarketisefficient,arbitrageopportunitiesshouIdbe

common.

C.Inanefficientmarket,somemarketparticipantswiIIhavean

advantageoverothers.

D.AfirmwiIIgeneraIIyreceiveafairpricewhenitsellsshares

ofstock.

E.Newinformationwillgraduallybereflectedinastock'sprice

toavoidanysuddenchangeinthepriceofthestock.

9.Accordingtotheefficientmarkethypothesis,financialmarkets

fIuctuatedailybecausethey:

A.areinefficient.

B.slowlyreacttonewinformation.

C.arecontinuaIIyreactingtonewinformation.

D.offertremendousarbitrageopportunities.

E.onIyrefIecthistoricaIinformation.

10.InsidertradingdoesnotofferanyadvantagesifthefinanciaI

marketsare:

A.weakformefficient.

B.semiweakformefficient.

C.semistrongformefficient.

D.strongformefficient.

E.inefficient.

11.Accordingtotheory,studyinghistoricaIpricesinorderto

identifymispricedstockswiIInotworkinmarketsthatare

efficient.

I.weakform

II.semistrongform

III.strongform

A.Ionly

B.IIonIy

C.IandIIonIy

D.IIandIIIonIy

E.I,II,andIII

12.Whichofthefollowingtendtoreinforcetheargumentthatthe

financiaImarketsareefficient?

□OI.Informationspreadsrapidlyintoday'sworId.

II.ThereistremendouscompetitioninthefinanciaImarkets.

III.MarketpricescontinuaIIyfIuctuate.

IV.MarketpricesreactsuddenIytounexpectednewsannouncements.

A.IandIIIonIy

B.IIandIVonIy

C.I,II,andIIIonIy

D.II,III,andIVonIy

E.I,II,III,andIV

13.IfyouexceIinanalyzingthefutureoutIookoffirms,youwouId

preferthatthefinanciaImarketsbeformefficientsothatyou

canhaveanadvantageinthemarketpIace.

A.weak

B.semiweak

C.semistrong

D.strong

E.perfect

14.YourbestfriendworksinthefinanceofficeoftheDelta

Corporation.YouareawarethatthisfriendtradesDeltastockbased

oninformationheoverhearsintheoffice.Youknowthatthis

informationisnotknowntothegeneraIpubIic.Yourfriend

continuaIIybragstoyouabouttheprofitsheearnstradingDeIta

stock.Basedonthisinformation,youwouIdtendtoarguethatthe

financiaImarketsareatbestformefficient.

A.weak

B.semiweak

C.semistrong

D.strong

E.perfect

15.The.SecuritiesandExchangeCommissionperiodicallycharges

individuaIsforinsidertradingandclaimsthoseindividuaIshave

madeunfairprofits.Basedonthisfact,youwouIdtendtoarguethat

thefinanciaImarketsareatbestformefficient.

A.weak

B.semiweak

C.semistrong

D.strong

E.perfect

16.IndividuaIsthatcontinuaIIymonitorthefinanciaImarkets

seekingmispricedsecurities:

A.tendtomakesubstantiaIprofitsonadailybasis.

B.tendtomakethemarketsmoreefficient.

C.areneverabIetofindasecuritythatistemporariIymispriced.

D.arealwaysquitesuccessfuIusingonIyweII-knownpubIic

informationastheirbasisofevaIuation.

E.arealwaysquitesuccessfuIusingonlyhistoricaIprice

informationastheirbasisofevaIuation.

17.EfficientcapitaImarketsarefinanciaImarkets:

A.inwhichcurrentmarketpricesrefIectavaiIabIeinformation.

B.inwhichcurrentmarketpricesrefIectthepresentvaIueof

securities.

C.inwhichthereisnoexcessprofitfromusingavaiIabIe

information.

D.Alloftheabove.

E.Noneoftheabove.

18.IftheefficientmarkethypothesishoIds,investorsshouId

expect:

A.toearnonlyanormaIreturn.

B.toreceiveafairpricefortheirsecurities.

C.toaIwaysbeabIetopickstocksthatwiIIoutperformthemarket

averages.

D.BothAandB.

E.BothBandC.

19.FinanciaImanagerscancreatevaIuethroughfinancingdecisions

that:

A.reducecostsorincreasesubsidies.

B.increasetheproductprices.

C.createanewsecurity.

D.BothAandB.

E.BothAandC.

20.Inanefficientmarketwhenafirmmakesanannouncementofa

newproductorproductenhancementwithsuperiortechnoIogy

providingpositiveNPV,thepriceofthestockwill:

A.risegraduaIIyoverthenextfewdays.

B.deciinegraduaIIyoverthenextfewdays.

C.riseonthesamedaytothenewprice.

D.stayatthesameprice,withnoneteffect.

E.droponthesamedaytothenewprice.

21.Aninvestordiscoversthatforacertaingroupofstocks,large

positivepricechangesarealwaysfoIIowedbylargenegativeprice

changes.Thisfindingisaviolationofthe:

A.moderateformoftheefficientmarkethypothesis.

B.semistrongformoftheefficientmarkethypothesis.

C.strongformoftheefficientmarkethypothesis.

D.weakformoftheefficientmarkethypothesis.

E.Noneoftheabove.

22.Whichofthefollowingwouldbeindicativeofinefficient

markets

A.Overreactionandreversion

B.DeIayedresponse

C.Immediateandaccurateresponse

D.BothAandB.

E.BothAandC.

23.WhenthestockpricefollowsarandomwaIk,thepricetodayis

saidtobeequaItothepriorperiodpricepIustheexpectedreturn

fortheperiodwithanyremainingdifferencetotheactuaIreturn

dueto:

A.apredictabIeamountbasedonthepastprices.

B.acomponentbasedonnewinformationunreIatedtopastprices.

C.thesecurity'srisk.

D.theriskfreerate.

E.Noneoftheabove.

24.WhichformoftheefficientmarkethypothesisimpIiesthat

securitypricesrefIectonIyinformationcontainedinpastprices

A.Weakform

B.Semistrongform

C.Strongform

D.Hardform

E.Pastform

25.IftheweakformofefficientmarketshoIds,then:

A.technicaIanalysisisuseIess.

B.stockpricesrefIectaIIinformationcontainedinpastprices.

C.stockpricesfollowarandomwaIk.

D.Alloftheabove.

E.Noneoftheabove.

26.Undertheconceptofanefficientmarket,arandomwaIkinstock

pricesmeansthat:

A.thereisnodrivingforcebehindpricechanges.

B.technicaIanaIystscanpredictfuturepricemovementstoearn

excessreturns.

C.theunexpIainedportionofpricechangeinoneperiodis

unreIatedtotheunexpIainedportionofpricechangeinanyother

period.

D.theunexpIainedportionofpricechangeinoneperiodthatcan

notbeexpIainedbyexpectedreturncanonIybeexpIainedbythe

unexpIainedportionofpricechangeinapriorperiod.

E.Noneoftheabove.

27.Asemistrongformefficientmarketisdistinetfromaweakform

efficientmarketby:

A.incorporatingonIyrandommovementsintheprice.

B.incorporatingallpubIiclyavaiIableinformationintheprice.

C.incorporatinginsideinformationintheprice.

D.Alloftheabove.

E.Noneoftheabove.

28.Ifamarketisstrongformefficient,itaIsoimpIiesthat:

A.semistrongformefficiencyhoIds.

B.weakformefficiencyhoIds.

C.onecannotearnabnormaIreturnswithinsideinformation.

D.BothAandC.

E.A,BandC.

29.Aninvestordiscoversthatpredictionsaboutweatherpatterns

pubIishedyearsinadvanceandfoundintheFarmer'sAlmanacare

amazingIyaccurate.Infact,thesepredictionsenabIetheinvestor

topredicttheheaIthofthefarmeconomyandthereforecertain

securityprices.Thisfindingisaviolationofthe:

A.moderateformoftheefficientmarkethypothesis.

B.semistrongformoftheefficientmarkethypothesis.

C.strongformoftheefficientmarkethypothesis.

D.weakformoftheefficientmarkethypothesis.

E.Noneoftheabove.

30.AIawyerworksforafirmthatadvisescorporatefirmspIanning

tosueothercorporationsforantitrustdamages.Hefindsthathe

can"beatthemarket"byshort-seIIingthestockofthefirmthat

wiIIbesued.Thisfindingisaviolationofthe:

A.moderateformoftheefficientmarkethypothesis.

B.semistrongformoftheefficientmarkethypothesis.

C.strongformoftheefficientmarkethypothesis.

D.weakformoftheefficientmarkethypothesis.

E.Noneoftheabove.

31.AninvestordiscoversthatstockpriceschangedrasticaIIyas

aresuItofcertainevents.Thisfindingisaviolationofthe:

A.moderateformoftheefficientmarkethypothesis.

B.semistrongformoftheefficientmarkethypothesis.

C.strongformoftheefficientmarkethypothesis.

D.weakformoftheefficientmarkethypothesis.

E.Noneoftheabove.

32.Thesemistrongformoftheefficientmarkethypothesisstates

that:

A.aIIinformationisrefIectedinthepriceofsecurities.

B.securitypricesrefIectaIIpubIicIyavaiIabIeinformation.

C.futurepricesarepredictabIe.

D.BothAandC.

E.Noneoftheabove.

33.ThemarketpriceofastockmovesorfIactuatesdaiIy.This

fluctuationis:

A.ineonsistentwiththesemistrongefficientmarkethypothesis

becausepricesshouIdbestabIe.

B.ineonsistentwiththeweakformefficientmarkethypothesis

becauseaIIpastinformationshouIdbepricedin.

C.consistentwiththesemistrongformoftheefficientmarket

hypothesisbecauseasnewinformationarrivesdailypriceswiII

adjusttoit.

D.consistentwiththestrongformbecausepricesarecontroIIed

byinsiders.

E.Noneoftheabove.

34.AninvestorwhopicksaportfoIiobythrowingdartsatthe

financiaIpages:

A.beIievesthatefficientmarketswiIIprotecttheportfoIiofrom

harmasaIIinformationispriced.

B.beIievesthatriskierportfoliosearnthesameasIessrisky

portfoIios.

C.doessobecausestockpricesdonotmatter;onIycashfIow

generatedmatters.

D.BothAandC.

E.BothBandC.

35.SupposethatfirmswithunexpectedIyhighearningsearn

abnormaIIyhighreturnsforseveraImonthsaftertheannouncement.

ThiswouIdbeevidenceof:

A.efficientmarketsintheweakform.

B.inefficientmarketsintheweakform.

C.efficientmarketsinthesemistrongform.

D.inefficientmarketsinthesemistrongform.

E.inefficientmarketsinthestrongform.

36.WhichofthefollowingisnottrueaboutseriaIcorrelation

A.ItmeasuresthecorreIationbetweenthecurrentreturnona

securityandthecurrentreturnonanothersecurity.

B.ItinvoIvesonIyonesecurity.

C.PositiveseriaIcorrelationindicatesatendencyfor

continuation.

D.NegativeseriaIcorreIationindicatesatendencytowardreversaI.

E.SignificantpositiveornegativeseriaIcorrelation

coefficientsareindicativeofmarketinefficiencyintheweakform.

37.Whichofthefollowingistrue

A.ArandomwaIkforstockpricechangesisineonsistentwith

observedpatternsinpricechanges.

B.IfthestockmarketfoIIowsarandomwaIk,pricechangesshould

behighlycorreIated.

C.Ifthestockmarketisweakformefficient,thenstockprices

followarandomwaIk.

D.Alloftheabove.

E.BothBandC.

38.Eventstudiesattempttomeasure:

A.theinfIuenceofinformationreIeasedtothemarketonreturns

indayssurroundingitsannouncement.

B.ifthemarketisatIeastsemistrongformefficient.

C.whetherthereisasignificantreactiontopubIicannouncements.

D.Alloftheabove.

E.Noneoftheabove.

39.TheabnormaIreturninaneventstudyisdescribedas:

A.thereturnearnedonthedayofannouncementforthestock.

B.theexcessreturnearnedonthedayofannouncementforthestock.

C.thetotaIreturnearnedfortheinvestmentholdingperiod.

D.Alloftheabove.

E.Noneoftheabove.

40.Evidenceonstockpricesfindsthatthesuddendeathofachief

executiveofficercausesstockpricestofaIIandthesuddendeath

ofanactivefoundingchiefexecutiveofficercausesstockpriceto

rise.Thiscontraryevidencehappensbecause:

A.marketsareinefficientandunsureofthereaIvaIueoftheevents.

B.deathisinevitableandmarketpricesarerandom.

C.thingssimplyhappen.

D.thevaIueofthefoundingexecutivewasanegativetothefirm.

E.Noneoftheabove.

41.StudiesoftheperformanceofprofessionaIIymanagedmutuaI

fundsfindthatthesefunds:

A.donotoutperformamarketindex.AssumingmutuaIfundmanagers

reIyprimariIyonpubIicinformation,thisfindingrefutesthe

semistrongformoftheefficientmarkethypothesis.

B.donotoutperformamarketindex.AssumingmutuaIfundmanagers

reIyprimariIyonpubIicinformation,thisfindingsupportsthe

semistrongformoftheefficientmarkethypothesis.

C.outperformamarketindex.AssumingmutuaIfundmanagersreIy

primariIyonpubIicinformation,thisfindingrefutesthesemistrong

formoftheefficientmarkethypothesis.

D.outperformamarketindex.AssumingmutuaIfundmanagersreIy

primarilyonpubIicinformation,thisfindingsupportsthe

semistrongformoftheefficientmarkethypothesis.

E.BothCandD.

42.Whichofthefollowingstatementsistrue

A.Inefficientmarkets,astock'spriceshouIdchangewiththe

arrivalofnewinformation.

B.AveragestockreturnsarehigherinJanuarythanothermonths.

C.StudiesbyFamaandFrenchandothersfindthatreturnsofhigh

booktomarketstocksaremuchhigherthanIowbooktomarketvaIue

stockstobeconsistentwiththeefficientmarkethypothesis.

D.Alloftheabove.

E.Noneoftheabove.

43.Whichofthefollowingistrue

A.MostempiricaIevidenceisconsistentwithstrongform

efficiency.

B.MostempiricaIevidenceisineonsistentwithweakform

efficiency.

C.Strongformmarketefficiencyisnotsupportedbytheempirical

evidence.

D.BothAandC.

E.BothBandC.

44.Inexaminingtheissueofwhetherthechoiceofaccounting

methodsaffectsstockprices,studieshavefoundthat:

A.accountingdepreciationmethodscansignificantlyaffectstock

prices.

B.switchingdepreciationmethodscansignificantIyaffectstock

prices.

C.accountingchangesthatincreaseaccountingearningsaIso

increasesstockprices.

D.accountingchangescanaffectstockpricesifthecompanywere

eithertowithholdinformationorprovideincorrectinformation.

E.Alloftheabove.

45.Marketefficiencysays:

A.pricesmaynotrefIectunderlyingvaIue.

B.agoodfinanciaImanagercantimestocksaIes.

C.managersmayprofitabIIyspecuIateinforeigncurrency.

D.managerscannotbooststockpricesthroughcreativeaccounting.

E.Noneoftheabove.

46.TheabnormaIreturnsforinitialpubIicofferingsoverlonger

timeperiodsseemtocaIImarketefficiencyintoquestionbecause:

A.theaveragereturnsatannouncementarelargeandpositivewhile

theIong-termresultsaremuchIowerthanthereturnsforseasoned

equityofferings.

B.theaveragereturnsatannouncementaresmaIIandnegativewhile

theIong-termresultsaremuchIowerthanthereturnsforseasoned

equityofferings.

C.theaveragereturnsatannouncementarezerowhiletheIong-term

resuItsaremuchhigherthanthereturnsforseasonedequity

offerings.

D.theaveragereturnsatannouncementarelargeandpositivewhile

theIong-termresuItsaremuchhigherthanthereturnsforseasoned

equityofferings.

E.theaveragereturnsatannouncementareinsignificantwhilethe

Iong-termresuItsaremuchIowerthanthereturnsforseasonedequity

offerings.

47.AnexampIeoffinanciaIIyirrationaIbehavioris:

A.gambIinginLasVegas.

B.whenafirmannouncesanincreaseinearningsandthestockprice

enjoysthreedaysofIargeabnormaIreturns.

C.whenafirmannouncesanincreaseinearningsandthestockprice

enjoysanimmediatesurgeinvaluewhichiscapturedinoneday.

D.BothAandB.

E.BothAandC.

48.Ritter'sstudyofInitialPubIicOfferings(IPOs)showedthat

thepostofferingstockperformancewas:

A.IessthanthecontroIgroupbyabout2%inthefiveyears

followingtheIPO.

B.incorrectIypricedatissuancebecauseoverthenextfiveyears

theabnormaIreturnsweregreaterthanzeroonaverage.

C.immateriaItothepricingoftheIPObecausefuturemarket

performanceisunknownatissuance.

D.equaIacrossIPOs,irrespectiveofriskorwhichyeartheywere

issued.

E.Alloftheabove.

49.Ifthesecuritiesmarketisefficient,aninvestorneedonIy

throwdartsatthestockpagestopicksecuritiesandbejustasweII

off.

A.Thisistruebecausetherearenodifferencesinriskandreturn.

B.Thisistruebecauseinanefficientstockmarketpricesdonot

fIuctuate.

C.ThisisfalsebecauseprofessionaIportfoliomanagerspreferto

generatecommissionsbyactivetrading.

D.ThisisfalsebecauseinvestorsmaynothoIdadesirabIe

risk-returncombinationintheirportfolio.

E.Thisisfalsebecausethemarketsarecontrolledbythe

institutionaIinvestors.

50.FinanciaImanagersmustbecognizantofmarketefficiency

because:

A.manipuIatingearningsbyaccountingchangesdoesnotfooIthe

market.

B.timingsecuritysaIesisfutiIebecausewithoutprivate

informationthecurrentpricerefIectsaIIknowninformation.

C.thereisIimitedpricepressurefromanyIargesaIeofstock

depressingpricesonIymomentariIybeforerecoveringtopriorIeveIs.

D.Alloftheabove.

E.Noneoftheabove.

51.Eventstudieshavebeenusedtoexamine:

A.IPOs,SEOs,andotherequityissuances.

B.changesinearnings.

C.mergersandacquisitions.

D.mostfinanciaIevents.

E.Alloftheabove.

52.Ifthemarketisweakformefficient:

A.semistrongformefficiencyhoIds.

B.strongformefficiencymusthoId.

C.semistrongformefficiencymayhoId.

D.marketsarenotweakformefficient.

E.Noneoftheabove.

53.InordertocreatevaIuefromcapitalbudgetingdecisions,the

firmislikelyto:

A.IocateanunsatisfieddemandforaparticuIarproductorservice.

B.createabarriertomakeitmoredifficultforotherfirmsto

compete.

C.produceproductsorservicesataIowercostthanthecompetition.

D.AandC.

E.A,B,andC.

54.VaIuabIefinancingopportunitiescanbecreatedby:

A.foolinginvestors.

B.reducingcostsorincreasingsubsidies.

C.thecreationofanewsecurity.

D.AandB.

E.A,B,andC.

55.Thefollowingtimeperiod(s)is/areconsistentwiththebubble

theory:

A.thestockmarketcrashof1929.

B.thestockmarketcrashof1972.

C.thestockmarketcrashof1987.

D.AandC.

E.A,B,andC.

56.Inthefiveyearsaftertheoffering,____underperformmatched

controIgroups.

A.initialpubIicofferings

B.seasonedequityofferings

C.bondofferings

D.AandB

E.A,B,andC

57.Inthethreeyearspriortoaforceddepartureofmanagement,

stockprices,adjustedformarketperformance,onaveragewill:

A.decIineabout20%.

B.decIineabout40%.

C.decIineabout60%.

D.remainstabIe.

E.increaseabout20%.

EssayQuestions

58.Definethethreeformsofmarketefficiency.

59.Explainwhyitisthatinanefficientmarket,investmentshave

anexpectedNPVofzero.

60.DoyouthinktheIessonsfromcapitaImarkethistorywiIIhold

foreachyearinthefuture

Thatis,asanexampIe,ifyoubuysmaIIstockswiIIyourinvestment

alwaysoutperform

.Treasurybonds

61.SupposeyourcousininvestsinthestockmarketanddoubI