Reading 54: Efficient Capital Markets LOSa习题精选 2010, hypothesis, efficient, following

honeycfa

LOS a, (Part 1): Define an efficient capital market.

If a firm announces an unexpectedly large cash dividend, the efficient market hypothesis (EMH) would predict which of the following price changes at the announcement?

A) No price change.

B) An abnormal price change to occur before the announcement.

C) An abnormal price change to occur at the time of the announcement.

---

Market efficiency assumes investors adjust their estimate of security prices rapidly to reflect their interpretation of the new information received. Market efficiency also assumes that new information comes to market randomly and is available to all investors at the same time. Therefore, the price should not be reflected prior to the announcement.

 

honeycfa

Which of the following is NOT an assumption behind efficient capital markets?

A) Market participants correctly adjust prices to reflect new information.

B) Return expectations implicitly include risk.

C) New information occurs randomly, and the timing of announcements is independent of one another.

---

The set of assumptions that imply an efficient capital market includes:

• There exists a large number of profit-maximizing market participants.
• New information occurs randomly.
• Market participants adjust their price expectations rapidly (but not necessarily correctly).
• Return expectations implicitly include risk.

honeycfa

An efficient capital market:

A) fully reflects all of the information currently available about a given security, including risk.

B) fully reflects all of the information currently available about a given security, excluding risk.

C) does not fully reflect all of the information currently available about a given security, including risk.

---

An efficient capital market fully reflects all of the information currently available about a given security, including risk.

honeycfa

Classifying a capital market as efficient is least likely to imply that:

A) stock prices adjust swiftly to new information.

B) stock price changes are random and unpredictable.

C) corporate insider’s investment performance will consistently exceed the performance of other investors.

---

In efficient markets, stock prices reflect all available information. Therefore, insiders have no advantage.

honeycfa

Which one of the following is least likely an assumption of efficient capital markets?

A) Market participants correctly adjust prices when new information is received.

B) Risk is included in the pricing of the security.

C) There are a large number of participants that analyze and value securities independently of one another.

---

Market efficiency assumes that market participants adjust prices rapidly to reflect their interpretation of new information, but not always correctly.

honeycfa

Which of the following is NOT an assumption that underlies an efficient capital market?

A) The expected returns implicitly include risk in the price of the security.

B) New information comes to the market in a random fashion and the timing of the news announcements are independent of each other.

C) Investors adjust their estimate of security prices slowly to reflect their interpretation of the new information received.

---

Investors adjust their estimate of security prices rapidly to reflect their interpretation of the new information.

honeycfa

Which of the following statements regarding efficient capital markets and its underlying assumptions is least accurate?

A) If the underlying assumptions for efficient capital markets hold true, then price changes are independent and random.

B) Price adjustments may be imperfect but are unbiased.

C) Efficient markets require that a large number of profit-maximizing investors come together to collectively analyze and value securities.

---

Efficient markets require that a large number of competing profit-maximizing participants analyze and value securities independently of one another.

honeycfa

Which of the following would be inconsistent with an efficient market?

A) Price adjustments are biased.

B) Stock prices adjust rapidly to new information.

C) Price changes are independent.

---

Market efficiency assumes that investors adjust their estimates of security prices rapidly to reflect their unbiased interpretation of the new information. New information arrives randomly and independently. Therefore, price changes are independent.

honeycfa

In an efficient market new information flows:

A) directly.

B) randomly.

C) in an orderly fashion.

---

Market efficiency assumes that new information comes to the market in a random fashion and that the timing of news announcements is independent of each other.

honeycfa

If the efficient markets hypothesis is true, portfolio managers should do all of the following EXCEPT:

A) Minimize transaction costs.

B) Spend more time working on security selection.

C) Work more with clients to better quantify their risk preferences.

---

In an efficient market all stocks are properly priced and reflect all publicly available information. Therefore, individual selection of stocks is not important the only thing that is relevant is the portfolio’s beta.