honeycfa

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.

---

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.

honeycfa

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.

---

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.

honeycfa

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.

---

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.

honeycfa

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.

---

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

honeycfa

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.

---

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.

honeycfa

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.

---

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.