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Multiple Choice Quiz
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1
The book-to-market effect refers to the finding that firms with high ratios of book value to market value tend to have annual returns ______________returns for firms with lower ratios.
A)greater than
B)less than
C)equal to
D)unrelated to
2
If stock returns exhibit positive but small serial correlation, this means that ______________ returns tend to follow ______________ returns.
A)positive; positive
B)large positive ; small positive
C)small negative; large negative
D)negative; positive
3
The strong-form version of the efficient market hypothesis states that stock prices reflect ______________ information relevant to the firm.
A)all publicly available as well as insider
B)all publicly available
C)all insider
D)all publicly available financial and economic
4
Which one of the following forms of market efficiency is violated if you can earn excess return by buying stocks of firms which make positive surprise earnings announcements?
A)Weak form
B)Semi-weak form
C)Semi-strong form
D)Strong form
5
Empirical findings generally show that a typical common stock mutual fund has a ______________.
A)positive alpha
B)negative alpha
C)zero alpha
D)return greater than the return for the S&P 500 index
6
The ______________ of the efficient market hypothesis implies that there is little or nothing to be gained from technical analysis.
A)weak form
B)semi-weak form
C)semi-strong form
D)strong form
7
The efficient market hypothesis suggests that investors should:
A)Adopt an active portfolio management strategy
B)Adopt a passive portfolio management strategy
C)Use technical analysis as the basis for investment decisions
D)Use fundamental analysis as the basis for investment decisions
8
Empirical tests of the strong-form version of the efficient market hypothesis indicate that ______________ are generally able to achieve superior returns.
A)hedge fund managers
B)professional money managers
C)stock exchange specialists
D)company insiders
9
Studies of stock market analysts and mutual fund performance indicate that:
A)Most stock market analysts employed by major brokerage firms tend to consistently outperform stock market indexes by a substantial margin.
B)Stock market analysts are more likely to issue "buy" recommendations than "sell" recommendations.
C)On average, mutual fund managers tend to consistently outperform stock market indexes by a substantial margin.
D)Performance of mutual fund managers demonstrates consistency in that there is a clear tendency for top performers in one time period to be top performers in a subsequent period.
10
Proposed explanations of market anomalies, such as the P/E effect and the small-firm effect, include:
A)These effects are manifestations of risk premiums associated with multiple factor models.
B)These effects are evidence of inefficient markets.
C)These effects are a consequence of data mining.
D)All of the above have been proposed as explanations.
11
Stock prices follow a random walk because ______________.
A)investors are irrational
B)new information is unpredictable
C)information is not efficiently disseminated
D)investors tend to rely on technical analysis
12
Some researchers have found that portfolios of stocks with low P/E ratios ______________.
A)outperform stocks with high P/E ratios
B)underperform stocks with high P/E ratios
C)tend to have the same returns as stocks with high P/E ratios
D)are uncorrelated with returns for high P/E stocks
13
The semistrong-form of the efficient market hypothesis is inconsistent with the notion of successful investment strategies based on ______________.
A)fundamental analysis, but does not address the possibility of successful insider trading
B)both technical analysis and fundamental analysis
C)fundamental analysis, but does not address the possibility of successful strategies based on technical analysis
D)technical analysis, but does not address the possibility of successful strategies based on fundamental analysis
14
The small-firm-in-January effect refers to the phenomenon that portfolios of small-firm stocks (compared to portfolios of large-firm stocks) tend to have:
A)Low returns in January
B)Low returns in December and January
C)High returns in January
D)Returns in January that are positively correlated with returns in December
15
In an efficient market, portfolio management:
A)Plays an important role in terms of diversification and risk management
B)Is relevant only for high-tax-bracket investors
C)Is relevant only in the management of bond portfolios
D)Does not require emphasis on diversification





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