All of the following statements about stock price are correct EXCEPTIn the short run (i.e., a static viewpoint), stock price reflects the weighted averageopinions of all investors in the market.In the long run (i.e., a dynamic viewpoint), stock price is determined by the opinions ofmarginal investors in the market.O While different investors may have different opinions about the value of the same stock,there is only one price for the same stock.In an efficient market, the stock price may deviate from marginal investors' valuation for aprolonged period but eventually the price will converge to the value.

The first three statements reflect an Efficient market hypothesis. This states that no single…

In the short run (i.e., a static viewpoint), stock price reflects the weighted average opinions of all investors in the market. In the long run (i.e., a dynamic viewpoint), stock price is determined by the opinions of marginal investors in the market. While different investors may have different opinions about the value of the same stock, there is only one price for the same stock. In an efficient market, the stock price may deviate from marginal investors' valuation for a prolonged period but eventually the price will converge to the value.

In the short run (i.e., a static viewpoint), stock price reflects the weighted average opinions of all investors in the market. In the long run (i.e., a dynamic viewpoint), stock price is determined by the opinions of marginal investors in the market. While different investors may have different opinions about the value of the same stock, there is only one price for the same stock. In an efficient market, the stock price may deviate from marginal investors' valuation for a prolonged period but eventually the price will converge to the value.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

The dividend growth model of stock evaluation relies on several assumptions that might not be true in the real world. What are they?
Consider the following two, completely separate economies. The expected return and volatility of all stocks in both economies are the same. In the first economy, all stocks move together in good times all prices rise together and in bad times, they all fall together. In the second economy, stock returns are independent-one stock increasing in price has no effect on the prices of other stocks. Which economy would you choose to invest in? Explain your rationale for your choice.
Explain whether the following statements are true or false. Justify your answer and solve both the parts of this question. a) The income from bond is more uncertain compared to the income from shares b) Managers want to maximize the intrisic value of the stock not the market price of the stock.
II. Determine what form of the theory of efficient market is being described in each item. Write W for weak form, SE for semi-strong form, ST_ for strong form. _7. The fundamental analysis will not give new information in this form. 8. Both the fundamental and technical analysis will not give new information. 9. The stock pricess show historical information which may or may not include inside information. _10. The stodk prices already reflect all publicly available date such as any product, financial statement, etc.
If the intrinsic value of a stock is below the current market price, over time we can expect buy orders to exceed sell orders, causing the price to rise buy and sell orders to be evenly matched, keeping the price at its current level sell orders to exceed buy orders, causing the price to rise sell orders to exceed buy orders, causing the price to fall buy orders to exceed sell orders, causing the price to fall
Apart from using PE ratio, what is another way of valuing the stock price? if we have the EPS, Share Price, Dividend Per Share, ROE and the discount rate (R). And what are the assumptions and the limitations of this model? What can be said about the dividend growth model? Similarly what can be said about the capital asset pricing model?
Based on the results from Fama and French, does it matter for the Efficient Markets Hypothesis if value stocks are riskier than growth stocks, or if growth stocks are riskier than value stocks? Why or why not?
What does beta represent? Multiple Choice Beta is a measure of covariance standardized by the variance of the market. This adjusts the risk of the firm to be relative to the risk of the market. Beta is the extra income earned on an investment that cannot be explained by systematic risk or unsystematic risk. Beta is related to the return on risk-free assets. Beta is always positive or O, it cannot be negative because stock prices cannot be negative.
Momentum has been reported in stock returns in many world stock markets. Existence of momentum: leads to abnormal return if weak form efficient market is accurate. contradicts weak form of EMH. contradicts semi-strong form of EMH. leads to normal return if weak form efficient market is not accurate. All of the above answers are correct.
You believe you have found a trading strategy that could make significant profits. It requires looking at analyst forecasts and purchasing stock where therehas been an upgrade in the recommendation and selling shares where there has been a downgrade in the recommendation.a. Describe which form the Efficient Market Hypothesis will be viola ed if you are able to make significant profits from your trading strategy in the future.b. List three factors that you may be overlooking in assessing the profitability of your trading strategy.
If most participants in the stock market do not follow what is happening to monetary aggregates, prices of common stock will not fully reflect information about them. Is this statement true? Explain your answer
which of the following statements is true? Select one: Investors sell a stock when required return is less than expected return and buy a stock when required return above expected return None of the answers are correct Investors buy a stock when it is under-valued and sell it when it is over-valued Investors sell a stock when it is under-valued and buy it when it is over-valued.

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