Question 1

Which of the following is not a concept related to explaining abnormal excess share returns?

Accepted Answer

A)  January effect
B)  Neglected firm effect
C)  P/E effect
D)  Preferred share effectE) A) and B)
F) None of the above

Question 2

Random price movements indicate ________.

Accepted Answer

A)  irrational markets
B)  that prices cannot equal fundamental values
C)  that technical analysis to uncover trends can be quite useful
D)  that markets are functioning efficientlyE) All of the above
F) A) and B)

Question 3

A technical analyst is most likely to be affiliated with which investment philosophy?

Accepted Answer

A)  Active management
B)  Buy and hold
C)  Passive investment
D)  Index fundsE) A) and B)
F) A) and C)

Question 4

Investors gravitate towards the latest hot share even though it has never paid a dividend. Even though net income is projected to fall over the current and next several years, the price of the share continues to rise. What behavioural concept may explain this price pattern?

Accepted Answer

A)  Overconfidence
B)  Loss aversion
C)  Mental accounting
D)  Calendar biasE) B) and D)
F) A) and D)

Question 5

Your two best friends each tell you about a person they know who successfully started a small business. That's it, you decide, if they can do it so can you. This is an example of ________.

Accepted Answer

A)  mental accounting
B)  framing bias
C)  conservatism
D)  representativeness biasE) None of the above
F) A) and B)

Question 6

Which one of the following best describes fundamental risk?

Accepted Answer

A)  A share is overpriced but your fund does not allow you to engage in short sales.
B)  Your models indicate a share is mispriced but you are not sure if this is a real profit opportunity or a model input error.
C)  You buy a share that you believe is underpriced and the underpricing persists for a long time, hurting your short term results.
D)  A share is trading in two different markets at two different prices.E) A) and D)
F) B) and C)

Question 7

Studies show that the bid-ask spread for the least liquid shares may be as high as ________.

Accepted Answer

A)  3%
B)  5%
C)  9%
D)  12%E) B) and D)
F) A) and B)

Question 8

DeBondt and Thaler (1985)  found that the poorest performing shares in one time period experienced ________ performance in the following period and the best performing shares in one time period experienced ________ performance in the following time period.

Accepted Answer

A)  good, good
B)  good, poor
C)  poor, good
D)  poor, poorE) B) and D)
F) None of the above

Question 9

If the daily returns on the share market are normally distributed with a mean of 0.05% and a standard deviation of 1.00%, the probability that the share market would have a return of -23.00% or worse on one particular day (as it did on Black Monday)  is approximately ________.

Accepted Answer

A)  0.0%
B)  0.1%
C)  1.0%
D)  10.0%E) C) and D)
F) All of the above

Question 10

Value shares may provide investors with better returns than growth shares if ________.
I. value shares are out of favor with investors
II. prices of growth shares include premiums for overly optimistic growth levels
III. value shares are likely to generate positive earnings surprises.

Accepted Answer

A)  I only
B)  II only
C)  I and III only
D)  I, II and IIIE) All of the above
F) B) and D)

Question 11

According to recent research securities markets fully adjust to earnings announcements ________.

Accepted Answer

A)  instantly
B)  in 1 day
C)  in 1 week
D)  gradually over timeE) B) and C)
F) A) and D)

Question 12

Technical analysis focuses on ________.

Accepted Answer

A)  finding opportunities for risk-free investing
B)  finding repeating trends and patterns in prices
C)  changing prospects for earnings growth of particular firms or industries
D)  forecasting technical regulatory changesE) B) and C)
F) C) and D)

Question 13

Which of the following is not a topic related to the debate over market efficiency?

Accepted Answer

A)  IPO results
B)  Lucky event issue
C)  Magnitude issue
D)  Selection biasE) All of the above
F) B) and C)

Question 14

An investor holds a very conservative portfolio invested for retirement but she takes some extra cash she earned from her year-end bonus and buys gold futures. She appears to be engaging in ________.

Accepted Answer

A)  overconfidence
B)  representativeness
C)  forecast errors
D)  mental accountingE) A) and B)
F) A) and C)

Question 15

Share prices that are stable over time ________.

Accepted Answer

A)  indicate that prices are useful indicators of true economic value
B)  indicate that the market is not incorporating new information into current share prices
C)  ensure that an economy allocates its resources efficiently
D)  indicates that returns follow a random walk processE) All of the above
F) A) and B)

Question 16

An investor has her money segregated into checking, savings and investments. The allocation between each category is subjective, yet the investor spends freely from the checking account and not the others. This behaviour can be explained as ________.

Accepted Answer

A)  loss aversion
B)  mental accounting
C)  overreaction
D)  winner's curseE) A) and B)
F) None of the above

Question 17

The semi-strong form of the EMH states that ________ must be reflected in the current share price.

Accepted Answer

A)  all security price and volume data
B)  all publicly available information
C)  all information including inside information
D)  all costless informationE) B) and C)
F) None of the above

Question 18

In an efficient market and for an investor that believes in a passive approach to investing, what is the primary duty of a portfolio manager?

Accepted Answer

A)  Accounting for results
B)  Diversification
C)  Identifying undervalued shares
D)  No need for a portfolio managerE) A) and B)
F) C) and D)

Question 19

Most people would readily agree that the share market is not ________.

Accepted Answer

A)  weak form efficient
B)  semi-strong form efficient
C)  strong form efficient
D)  efficient at allE) None of the above
F) B) and C)

Question 20

According to technical analysts, a shift in market fundamentals will ________.

Accepted Answer

A)  be reflected in share prices immediately
B)  lead to a gradual price change that can be recognised as a trend
C)  lead to high volatility in share market prices
D)  leave prices unchangedE) A) and C)
F) B) and D)

Exam 8: The Efficient Market Hypothesis and Behavioral Finance

According to technical analysts, a shift in market fundamentals will ________.

Correct AnswerverifiedShow Answer

An investor holds a very conservative portfolio invested for retirement but she takes some extra cash she earned from her year-end bonus and buys gold futures. She appears to be engaging in ________.

Correct AnswerverifiedShow Answer

Studies show that the bid-ask spread for the least liquid shares may be as high as ________.

Correct AnswerverifiedShow Answer

Technical analysis focuses on ________.

Correct AnswerverifiedShow Answer

DeBondt and Thaler (1985) found that the poorest performing shares in one time period experienced ________ performance in the following period and the best performing shares in one time period experienced ________ performance in the following time period.

Correct AnswerverifiedShow Answer

A technical analyst is most likely to be affiliated with which investment philosophy?

Correct AnswerverifiedShow Answer

Value shares may provide investors with better returns than growth shares if ________. I. value shares are out of favor with investors II. prices of growth shares include premiums for overly optimistic growth levels III. value shares are likely to generate positive earnings surprises.

Correct AnswerverifiedShow Answer

Your two best friends each tell you about a person they know who successfully started a small business. That's it, you decide, if they can do it so can you. This is an example of ________.

Correct AnswerverifiedShow Answer

An investor has her money segregated into checking, savings and investments. The allocation between each category is subjective, yet the investor spends freely from the checking account and not the others. This behaviour can be explained as ________.

Correct AnswerverifiedShow Answer

Most people would readily agree that the share market is not ________.

Correct AnswerverifiedShow Answer

Random price movements indicate ________.

Correct AnswerverifiedShow Answer

Which of the following is not a concept related to explaining abnormal excess share returns?

Correct AnswerverifiedShow Answer

Which one of the following best describes fundamental risk?

Correct AnswerverifiedShow Answer

In an efficient market and for an investor that believes in a passive approach to investing, what is the primary duty of a portfolio manager?

Correct AnswerverifiedShow Answer

If the daily returns on the share market are normally distributed with a mean of 0.05% and a standard deviation of 1.00%, the probability that the share market would have a return of -23.00% or worse on one particular day (as it did on Black Monday) is approximately ________.

Correct AnswerverifiedShow Answer

The semi-strong form of the EMH states that ________ must be reflected in the current share price.

Correct AnswerverifiedShow Answer

Which of the following is not a topic related to the debate over market efficiency?

Correct AnswerverifiedShow Answer

Share prices that are stable over time ________.

Correct AnswerverifiedShow Answer

Investors gravitate towards the latest hot share even though it has never paid a dividend. Even though net income is projected to fall over the current and next several years, the price of the share continues to rise. What behavioural concept may explain this price pattern?

Correct AnswerverifiedShow Answer

According to recent research securities markets fully adjust to earnings announcements ________.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

DeBondt and Thaler (1985) found that the poorest performing shares in one time period experienced performance in the following period and the best performing shares in one time period experienced performance in the following time period.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified