Reading 54: Efficient Capital Markets LOSb习题精选 2010, hypothesis, efficient, security

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LOS b, (Part 1): Describe the tests used to examine each of the three forms of the EMH.

Which form(s) of the efficient market hypothesis (EMH) is (are) tested by measuring a security’s excess returns with respect to market returns while considering the security’s market risk?

A) Semi-strong form.

B) Weak-form.

C) Weak and semi-strong forms.

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One set of tests for the semi-strong form of the EMH examines security performance adjusted for market risk.

 

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A stock's abnormal rate of return is defined as the:

A) rate of return during abnormal price movements.

B) actual rate of return less the expected risk-adjusted rate of return.

C) expected risk-adjusted rate of return minus the market rate of return.

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Abnormal return = Actual return – expected risk-adjusted return

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

A) The semistrong form of the market efficiency hypothesis states that prices fully reflect all information from public sources.

B) Filter rules in stock trading have been shown to produce above-average rates of return, even after including transactions costs.

C) Efficient capital markets assume that information comes to the market in a random fashion.

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Filter rules have not been shown to produce above-average rates of return after accounting for transactions costs.

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If statistical tests of stock returns over time support the efficient market hypothesis, the resulting correlations should be:

A) lagged.

B) positive.

C) zero.

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There should be zero correlation between observations, or all observations should be independent of each other, if the weak-form EMH is true.

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Tests of trading rules based on available market data are tests of which form of the efficient markets hypothesis (EMH)?

A) They are used to test all three forms.

B) Weak-form.

C) Semistrong-form.

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Trading rule tests are used to examine the weak form of the EMH. Most evidence suggests that technical trading rules do not produce superior returns after adjusting for transaction costs and taxes.

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“Runs tests” involve which form of the efficient markets hypothesis (EMH)?

A) They are used to test all three forms.

B) Weak-form.

C) Semistrong-form.

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Statistical tests of the independence of security returns are used to examine the weak form of the EMH. Autocorrelation and runs tests are tests for independence over time.

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Which of the following are examples of tests used to examine the statistical independence of past returns?

A) Filter rules tests.

B) Runs tests.

C) Event study tests.

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Both the runs and the autocorrelation tests are used to examine the statistically independence of past returns. Filter rule tests have been conducted to see if investors can earn excess returns following mechanical trading rules based on price data.

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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.

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

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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.

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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.

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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.

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