honeycfa

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.

honeycfa

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.

honeycfa

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.

honeycfa

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