honeycfa

Which of the following statements about the semistrong-form efficient market hypothesis (EMH) and the strong-form EMH is least accurate?

A) Tests have found that stocks with low price to earning (P/E) ratios tend to outperform stocks with high P/E ratios.

B) The "Heard on the Street" column in the Wall Street Journal appears to move stocks.

C) Small firms tend to underperform large firms on a risk-adjusted basis.

---

Small firms tend to outperform large stocks on a risk-adjusted basis.

honeycfa

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

A) The evidence suggests that stock markets are weak-form efficient.

B) Tests of independence in stock returns have found no autocorrelation.

C) Studies of market anomalies have found a positive return between the Friday close and the Monday open, known as the weekend effect.

---

Studies of market anomalies have found a negative return between the Friday close and the Monday open. This is known as the weekend effect.

honeycfa

Many academics claim that a particular anomaly's results reflect the inability of the asset pricing model to provide a complete measure of risk. Which of the following anomalies are the academics discussing?

A) The size effect.

B) Initial public offerings.

C) The neglected firm effect.

---

Many academics believe that the size effect is an anomaly due to the capital asset pricing model's (CAPM) inability to provide a complete measure of risk.

honeycfa

Documented market anomalies include all of the following EXCEPT:

A) firms with only a small number of analysts following them have abnormally high returns.

B) the greater the ratio of book value/market value, the greater the risk-adjusted rate of return.

C) the ability for an investor to profit by buying stocks on Friday and selling them on Monday.

---

The weekend effect actually shows that there is a negative return from buying stocks on Friday and selling them on Monday. The book value/market value ratio effect and the neglected firm effect are both documented market anomalies.

honeycfa

Which of the following conclusions about the semistrong form of the efficient market hypothesis (EMH) and the strong-form EMH is least accurate?

A) Some tests reject the semistrong form of market efficiency.

B) Neglected firms (i.e., those firms with a small number of analysts following them) tend to underperform the market.

C) If the strong form of market efficiency were true, there would be no need for insider trading laws.

---

Neglected firms tend to outperform the market.

honeycfa

Which of the following groups of stocks do NOT tend to show above average returns over time?

A) Stocks with low Book Value to Market Value (BV/MV).

B) Small stocks.

C) Neglected stocks.

---

Most empirical evidence suggests that the greater the ratio of book value/market value, the greater the risk adjusted rate of return. Small, neglected and low P/E stocks have all shown evidence of excess returns.

honeycfa

Which of the following would provide evidence against the semistrong form of the efficient market theory?

A) Trend analysis is worthless in determining stock prices.

B) All investors have learned to exploit signals related to future performance.

C) Low P/E stocks tend to have positive abnormal returns over the long run.

---

P/E information is publicly available information and therefore this test relates to the semistrong-form EMH. Trend analysis is based on historical information and therefore relates to the weak-form EMH. In an efficient market one would expect 50% of pension fund managers to do better than average and 50% of pension fund managers to do worse than average. If all investors exploit the same information no excess returns are possible.

honeycfa

The opportunity to take advantage of the downward pressure on stock prices that result from end-of-the-year tax selling is known as the:

A) end-of-the-year effect.

B) end-of-the-year anomaly.

C) January anomaly.

---

The January Anomaly is most likely the result of tax induced trading at year end. An investor can profit by buying stocks in December and selling them during the first week in January.

honeycfa

Banz and Reinganum found that small firms consistently outperformed large firms. This anomaly is referred to as the:

A) size effect.

B) large firm effect.

C) growth effect.

---

The size effect indicates that small firms consistently experienced significantly larger risk-adjusted returns than larger firms.

honeycfa

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

A) Weak-form.

B) Strong-form.

C) Both weak and semistrong form.

---

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