Question 1

Banz (1981) has evidenced a trading strategy in the USA that can earn risk-adjusted profits of around 20% by taking:

Accepted Answer

A)   long positions in a portfolio of large firms and short positions in a portfolio of small firms
B)   short positions in a portfolio of large firms and long positions in a portfolio of small firms
C)   short positions in a portfolio of small firms and long positions in a portfolio of large firms
D)   long positions in a portfolio of small firms and short positions in a portfolio of large firmsE) A) and B)
F) All of the above

Question 2

Which of the following beliefs would not preclude charting as a method of portfolio management?

Accepted Answer

A)  The market is strong form efficient.
B)  The market is semi-strong form efficient.
C)  The market is weak form efficient.
D)  Stock prices follow recurring patterns.E) A) and D)
F) None of the above

Question 3

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) B) and C)
F) A) and B)

Question 4

According to the semi-strong form efficient: ____________.

Accepted Answer

A)  stock prices do not rapidly adjust to new information
B)  future changes in stock prices cannot be predicted from any information that is publicly available
C)  corporate insiders should have no better investment performance than other investors even if allowed to trade freely
D)  arbitrage between futures and cash markets should not produce extraordinary profitsE) B) and C)
F) A) and D)

Question 5

Economy wide announcements such as those about money supply tend to create a large amount of market reaction.

Accepted Answer

A) True 
 B)False

Question 6

An abnormal return is calculated as:

Accepted Answer

A)   expected return less risk-free rate
B)   expected return less market return
C)   actual return less market return
D)   actual return less expected returnE) A) and D)
F) A) and C)

Question 7

Bowman and Buchanan (1995) argue that there are two sets of forces at work that operate as impediments to the acceptance of efficient markets.These are:

Accepted Answer

A)   market structure forces and behavioural forces
B)   market structure forces and industry structure forces
C)   market structure forces and international market structure forces
D)   none of these choicesE) All of the above
F) C) and D)

Question 8

The weak form efficiency states that all past information,including security price and volume data,must be reflected in the current stock price.

Accepted Answer

A) True 
 B)False

Question 9

Lakonishok,Shleifer and Vishny (1994) provide arguments why fund managers will avoid:

Accepted Answer

A)   value shares
B)   growth shares
C)   glamorous shares
D)   all of these choicesE) A) and D)
F) A) and B)

Question 10

Growth shares are those firms that are expected to grow at a faster rate than:

Accepted Answer

A)   value shares
B)   speculative shares
C)   glamorous shares
D)   the marketE) A) and D)
F) B) and C)

Question 11

The production of _____ is more likely to be greater during trading periods.

Accepted Answer

A)   private information
B)   public information
C)   private and public information
D)   neither private nor public informationE) A) and B)
F) None of the above

Question 12

According to Black (1986),informed traders are most unlikely to trade on 'noise'.

Accepted Answer

A) True 
 B)False

Question 13

Trading on the NYSE is halted for one hour if the Dow Jones Index falls by:

Accepted Answer

A)   150 points
B)   200 points
C)   250 points
D)   400 pointsE) All of the above
F) C) and D)

Question 14

Prospect theory provides an explanation for why individuals tend to

Accepted Answer

A)   hold on to their investments for too long
B)   sell their investments too quickly
C)   sell their investments under value
D)   none of these choicesE) None of the above
F) A) and B)

Question 15

Returns in the Australian market are on average positive in which of the following months?

Accepted Answer

A)   January
B)   July
C)   December
D)   all of these choicesE) None of the above
F) A) and B)

Question 16

Loyalists believe that the long-term patterns in returns are induced by institutional and/or research method problems such that the patterns are artificial and therefore not exploitable.Examples are:

Accepted Answer

A)   changes in risk that are not accounted for when estimating abnormal returns
B)   differences in firm size
C)   problems in correctly estimating beta risk over different return intervals
D)   all of these choicesE) B) and D)
F) A) and B)

Question 17

The study by Brailsford and Faff (1993) shows that the All-Ordinaries Index exhibits autocorrelation in the order of:

Accepted Answer

A)    0.1 0.1 0.1 
B)    0.2 0.2 0.2 
C)    0.5 0.5 0.5 
D)    −0.2 -0.2 −0.2  E) All of the above
F) None of the above

Question 18

The hypothesis that argues that there is a downward price pressure at the end of the tax year on shares that have experienced recent price declines as investors attempt to sell in order to realise capital losses is the:

Accepted Answer

A)   tax-loss selling hypothesis
B)   tax on capital gains hypothesis
C)   price rebound hypothesis
D)   share price declines hypothesisE) A) and B)
F) B) and C)

Question 19

Beedles,Dodd and Officer (1988)find that Australian small firms have risk-adjusted returns of around 8% p.a.

Accepted Answer

A) True 
 B)False

Question 20

Efficiency predicts that when markets reach a peak there will often be a 'realignment' or 'market correction'.

Accepted Answer

A) True 
 B)False

Exam 10: Concepts and Applications of Market Efficiency

Banz (1981) has evidenced a trading strategy in the USA that can earn risk-adjusted profits of around 20% by taking:

Correct AnswerverifiedShow Answer

According to the semi-strong form efficient: ____________.

Correct AnswerverifiedShow Answer

Loyalists believe that the long-term patterns in returns are induced by institutional and/or research method problems such that the patterns are artificial and therefore not exploitable.Examples are:

Correct AnswerverifiedShow Answer

An abnormal return is calculated as:

Correct AnswerverifiedShow Answer

Growth shares are those firms that are expected to grow at a faster rate than:

Correct AnswerverifiedShow Answer

Economy wide announcements such as those about money supply tend to create a large amount of market reaction.

Correct AnswerverifiedShow Answer

The production of _____ is more likely to be greater during trading periods.

Correct AnswerverifiedShow Answer

Lakonishok,Shleifer and Vishny (1994) provide arguments why fund managers will avoid:

Correct AnswerverifiedShow Answer

Which of the following beliefs would not preclude charting as a method of portfolio management?

Correct AnswerverifiedShow Answer

Efficiency predicts that when markets reach a peak there will often be a 'realignment' or 'market correction'.

Correct AnswerverifiedShow Answer

Random price movements indicate ________.

Correct AnswerverifiedShow Answer

Trading on the NYSE is halted for one hour if the Dow Jones Index falls by:

Correct AnswerverifiedShow Answer

According to Black (1986),informed traders are most unlikely to trade on 'noise'.

Correct AnswerverifiedShow Answer

The weak form efficiency states that all past information,including security price and volume data,must be reflected in the current stock price.

Correct AnswerverifiedShow Answer

Prospect theory provides an explanation for why individuals tend to

Correct AnswerverifiedShow Answer

Bowman and Buchanan (1995) argue that there are two sets of forces at work that operate as impediments to the acceptance of efficient markets.These are:

Correct AnswerverifiedShow Answer

The study by Brailsford and Faff (1993) shows that the All-Ordinaries Index exhibits autocorrelation in the order of:

Correct AnswerverifiedShow Answer

Beedles,Dodd and Officer (1988)find that Australian small firms have risk-adjusted returns of around 8% p.a.

Correct AnswerverifiedShow Answer

The hypothesis that argues that there is a downward price pressure at the end of the tax year on shares that have experienced recent price declines as investors attempt to sell in order to realise capital losses is the:

Correct AnswerverifiedShow Answer

Returns in the Australian market are on average positive in which of the following months?

Correct AnswerverifiedShow Answer

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