honeycfa

Studies from which form(s) of the efficient market hypothesis (EMH) provide evidence that security prices adjust so quickly to a public announcement that it is not possible for investors to realize significant abnormal returns after a public announcement has been made?

A) weak-form of the EMH.

B) semistrong-form of the EMH.

C) strong-form of the EMH.

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Event study results provide strong evidence in support of the semistrong-form of the EMH. However, time series and cross-sectional tests provide mixed evidence of semi-strong form efficiency.

honeycfa

Which of the following statements regarding capital market efficiency is most accurate?

A) Event studies and time series tests provide evidence that markets do not tend to be semi-strong form efficient.

B) Study results generally do not support the strong form of the efficient market hypothesis.

C) Corporate insiders and stock exchange specialists have monopolistic access to information that can be used to obtain positive abnormal returns.

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In general, study results support the strong form of the efficient market hypothesis. Exceptions include corporate insiders and exchange specialists since they appear to have monopolistic access to important information that may allow them to achieve positive abnormal returns.

honeycfa

Which of the following statements describes the overall conclusions regarding the weak-form of the efficient market hypothesis (EMH)?

A) Most evidence indicates that after incorporating trading costs, simple trading rules do not generate positive abnormal profits.

B) Corporate insiders and exchange specialists have monopolistic access to highly valuable information.

C) All evidence indicates that simple trading rules generate positive abnormal returns.

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Positive returns cannot be obtained thru the use of simple trading rules, since this pertains to the weak-form EMH.

honeycfa

Which of the following statements is least accurate with regard to the tests for the three forms of the efficient market hypothesis?

A) The historical performance of professional money managers supports the strong form of the EMH.

B) The tests for the semi-strong form EMH give mixed results. Time-series tests such as dividend yield and default spread reject the semi-strong form EMH and event studies on stock splits and announcements of accounting changes support it.

C) Results of trading rule tests, such as filter rules, support the semi-strong form of the EMH.

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Results of trading rule tests, such as filter rules, support the weak form of the EMH.

The other choices are true. Tests show that professional money managers perform no better than a random buy and hold strategy. This supports the strong form EMH contention that stock prices reflect all information, public and private. (Aside from corporate insiders and specialists, no group has monopolistic access to information that would result in superior returns.)