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Multiple Choice Quiz
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1

Proponents of the EMH typically advocate
A)a passive investment strategy.
B)investing in an index fund.
C)an active trading strategy.
D)A and B.
E)B and C.
2

Music Doctors has a beta of 2.25. The annualized market return yesterday was 12%, and the risk-free rate is currently 4%. You observe that Music Doctors had an annualized return yesterday of 15%. Assuming that markets are efficient, this suggests that
A)bad news about Music Doctors was announced yesterday.
B)good news about Music Doctors was announced yesterday.
C)no news about Music Doctors was announced yesterday.
D)interest rates rose yesterday.
E)interest rates fell yesterday.
3

A daily fluctuation of little importance is called
A)a market trend.
B)a primary trend.
C)an intermediate trend.
D)a minor trend.
E)none of the above
4

The debate over whether markets are efficient will probably never be resolved because of
A)the selection bias issue.
B)the magnitude issue.
C)the lucky event issue.
D)none of the above
E)all of the above
5

A common strategy for passive management is
A)creating an investment club.
B)creating a small firm fund.
C)creating an index fund.
D)A and B.
E)B and C.
6

Researchers have found that most of the small firm effect occurs
A)during the summer months.
B)during the spring months.
C)in January.
D)in December.
E)randomly.
7

A study by Ball, Kothari and Shanken (1995) examines the reversal effect and finds
A)the reversal effect is substantially diminished when portfolios are formed based on mid-year performance rather than December results.
B)the reversal effect seems to be concentrated in low-priced shares.
C)the risk-adjusted return from trying to exploit the reversal effect is effectively zero.
D)none of the above
E)all of the above
8

Proponents of the EMH think technical analysts
A)are wasting their time.
B)should focus on resistance levels.
C)should focus on support levels.
D)should focus on financial statements.
E)should focus on relative strength.
9

Fama and French (1988) found that the return on the aggregate stock market
A)is higher when bank failures are high.
B)is lower when the dividend yield is high.
C)is unrelated to the dividend yield.
D)is higher when the dividend yield is high.
E)is unrelated to the economy.
10

In an efficient market the correlation coefficient between stock returns for two non-overlapping time periods should be
A)positive and large.
B)positive and small.
C)negative and large.
D)negative and small.
E)zero.





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