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Concept Review Questions
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  1. What is meant by a "random walk?" Explain why prices in an efficient market should follow something like a random walk. (pages 355-358)


  2. Describe the three forms of the efficient-market hypothesis and give an example of the evidence for each. (pages 358-359)


  3. Give three examples of apparent exceptions to the efficient-market hypothesis. (pages 365-366)


  4. Suppose that after considerable research you identify a group of stocks that have had above-average returns in the past. What are the possible explanations? (page 363-364)


  5. What is "prospect theory?" How does it differ from the assumptions used to develop the capital asset pricing model? (page 367)


  6. Describe two ways that individuals may make biased assessments of probabilities. Give an example of each. (page 368)


  7. This chapter described six lessons of market efficiency. What are they? Give an example of each. (pages 372-376)





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