Q8. A trading rule which signals purchase of a stock if it rises X percent and sale of stock if it falls X percent is known as a:

A)   breakout.

B)   sieve.

C)   filter.

Q9. A “runs test” on successive stock price changes which supports the efficient market hypothesis would show that the actual number of runs:

A)   is small.

B)   falls into the range expected of a dependent series.

C)   falls into the range expected of a random series.

Q10. Which of the following statements about the efficient market hypothesis is least accurate?

A)   Efficient markets tests have found that professional money managers, as a group, have consistently outperformed the market.

B)   Exchange specialists derive above-average returns from private information.

C)   The use of a price weighting versus a market value weighting produces a downward bias on the index.

Q11. Which category of tests assumes that, in an efficient market, securities lie on the security market line?

A)   Anomaly studies.

B)   Time-series tests.

C)   Cross-sectional tests.

Q12. Which of the following has least likely been involved in a direct test of the semistrong form of the efficient market hypothesis (EMH)?

A)   Exchange listing.

B)   Stock splits.

C)   NYSE Specialists' returns.

Q13. Which of the following forms of the EMH assumes that no group of investors has monopolistic access to relevant information?

A)   Weak-form.

B)   Both weak and semistrong form.

C)   Strong-form.

Q14. Which of the following tests are NOT used to examine the weak form of the efficient market hypothesis? Those that examine:

A)   whether security returns are independent over time.

B)   whether excess returns can be obtained from using mechanical trading rules.

C)   a security's return relative to the market return.

Q8. A trading rule which signals purchase of a stock if it rises X percent and sale of stock if it falls X percent is known as a:fficeffice" />

A)   breakout.

B)   sieve.

C)   filter.

Correct answer is C)

Filter rules entail trading stocks when prices move up or down by certain amounts.

Q9. A “runs test” on successive stock price changes which supports the efficient market hypothesis would show that the actual number of runs:

A)   is small.

B)   falls into the range expected of a dependent series.

C)   falls into the range expected of a random series.

Correct answer is C)

The weak form of the efficient market hypothesis argues that, over time, security returns are independent of each other. Runs tests contend that stock price changes (upticks and downticks) are independent over time.

Q10. Which of the following statements about the efficient market hypothesis is least accurate?

A)   Efficient markets tests have found that professional money managers, as a group, have consistently outperformed the market.

B)   Exchange specialists derive above-average returns from private information.

C)   The use of a price weighting versus a market value weighting produces a downward bias on the index.

Correct answer is A)

Professional money managers, as a group, have not been found to outperform the market.

Q11. Which category of tests assumes that, in an efficient market, securities lie on the security market line?

A)   Anomaly studies.

B)   Time-series tests.

C)   Cross-sectional tests.

Correct answer is C)

Cross-sectional tests operate under the assumption that, in an efficient market, all securities must lie directly on the security market line.

Q12. Which of the following has least likely been involved in a direct test of the semistrong form of the efficient market hypothesis (EMH)?

A)   Exchange listing.

B)   Stock splits.

C)   NYSE Specialists' returns.

Correct answer is C)

Stock exchange specialists tests are a test of the strong-form EMH, because they are related to private or insider information.

Q13. Which of the following forms of the EMH assumes that no group of investors has monopolistic access to relevant information?

A)   Weak-form.

B)   Both weak and semistrong form.

C)   Strong-form.

Correct answer is C)

According to the strong-form EMH, security prices reflect all information, which includes the privately available (monopolistic) information.

Q14. Which of the following tests are NOT used to examine the weak form of the efficient market hypothesis? Those that examine:

A)   whether security returns are independent over time.

B)   whether excess returns can be obtained from using mechanical trading rules.

C)   a security's return relative to the market return.

Correct answer is C)

Early tests for the semi-strong form of the efficient market hypothesis (EMH) examine security performance relative to the market return. Weak-form EMH tests include auto correlation, run, and trading rule tests.

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