Reading 54: Efficient Capital Markets LOSc习题精选 face, conclusion, efficiency, technical

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LOS c, (Part 1): Explain the implications of stock market efficiency for technical analysis and fundamental analysis.

The conclusion that technical analysis adds no value:

A) is not supported by fact.

B) supports the weak form of the EMH.

C) neither of these answers are correct.

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Simple trading rule, autocorrelation and runs tests generally find evidence suggesting that technical analysis based on historical information does not generate significant excess returns.

 

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Assuming market efficiency, which of the following statements regarding technical and fundamental analysis is FALSE?

A) The only way to obtain superior results using historical data is to perform a top down analysis examining first the market, then the industry and then individual firms.

B) Evidence indicates it is possible to obtain superior returns by investing in mid-cap firms since they tend to be followed by fewer analysts.

C) Technical analysis that relies exclusively on historical data has no value.

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Assuming market efficiency, any approach, including a top down approach, will not produce superior results as long as it relies exclusively on historical data.

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Which of the following actions is most likely to give an analyst superior results?

A) A strong ability to interpret and estimate the future impact of publicly available information.

B) Having superior abilities to identify patterns of returns based on historical data of economic factors and being able to determine the relationship between a stock return and certain economic factors based on historical data and then use that relationship to make reliable forecasts for future price movements.

C) The ability to react very quickly to public announcements.

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An analyst cannot obtain superior results by relying on historical data. The analyst must be able to do a superior job of interpreting and estimating variables that are relevant to the value of the security.

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The performance of professional money managers taken as a whole has been:

A) inconsistent with the strong form of the EMH.

B) below average.

C) above average.

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The implication of the strong-form tests is that money managers as a group have not outperformed the buy-and-hold policy. In fact after accounting for fees, mutual funds, bank trust departments, pension plans, and endowment funds are not able to match the performance of a simple buy-and-hold policy.

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Under the efficient market hypothesis (EMH), the major effort of the portfolio manager should be to:

A) minimize systematic risk in the portfolio.

B) achieve complete diversification of the portfolio.

C) stay the course by following a strict buy and hold strategy.

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In an efficient market, portfolio managers must create and maintain the appropriate mix of assets to meet their client’s needs. The portfolio should be diversified to eliminate unsystematic risk. The appropriate systematic risk will depend on the clients risk tolerance and return requirement. Over time the needs of the client and environment will justify changes to the portfolio. The manager should also try to minimize transaction costs and at least try to match the performance of a benchmark.

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LOS c, (Part 2): Explain the implications of stock market efficiency for the portfolio management process and the role of the portfolio manager.

Which of the following statements about the assumptions of efficient capital markets and the conclusion of the efficient market hypothesis is least accurate?

A) Tests of market efficiency have found no strategy that produces excess returns above the market after accounting for transaction costs.

B) If markets are efficient, investors should not trade often.

C) In testing for semistrong-form market efficiency, researchers typically adjust for the stock's risk.

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Several strategies have been shown to produce abnormal returns (returns above the market after adjusting for risk). Small firms and firms with low price to earnings (P/E) ratios and high book-to-market values have all been found to produce positive abnormal returns.

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In a perfectly efficient market, portfolio managers should do all of the following EXCEPT:

A) monitor their client's needs and circumstances.

B) quantify their risk and return needs within the bounds of the client's liquidity, income, time horizon, legal, and regulatory constraints.

C) diversify to eliminate systematic risk.

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Portfolio managers cannot eliminate systematic risk (i.e., market risk) thru the use of diversification. Portfolio managers should try to eliminate unsystematic portfolio risk.

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An implication of the weak-form efficient market hypothesis (EMH) is:

A) insider information is of no value for obtaining excess abnormal returns.

B) that technical analysts can make excess returns on filter rules but not runs rules.

C) that there should be no relationship between past price changes and future price changes.

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The implication of the weak-form EMH is that there should be no relationship between past price changes and future price changes. Results of runs tests and filter tests suggest that excess returns are not possible. Tests related to insider or private information are related to the strong-form EMH.

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The performance of professional money managers taken as a whole has been:

A) above average.

B) below average.

C) a support for semi-strong form of the EMH.

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The implication of the strong-form tests is that money managers as a group have not outperformed the buy-and-hold policy. In fact after accounting for fees, mutual funds, bank trust departments, pension plans, and endowment funds are not able to match the performance of a simple buy-and-hold policy.

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Which of the following statements least likely describes the role of a portfolio manager in perfectly efficient markets? Portfolio managers should:

A) construct a portfolio that includes financial and real assets.

B) quantify client's risk tolerance, communicate portfolio policies and strategies, and maintain a strict buy and hold policy avoiding any changes in the portfolio to minimize transaction costs.

C) construct diversified portfolios that include international securities to eliminate unsystematic risk.

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A portfolio manager should quantify each client's risk tolerance and communicate portfolio policies and strategies. However, portfolio managers should monitor client's needs and changing circumstances and make appropriate changes to the portfolio. Adhering to a strict buy and hold policy would not be in the client's best interest. Portfolios need to be rebalanced and changed to meet client’s changing needs.