Which of the following statements is FALSE? When a buyer seeks to buy a stock, the willingness of other parties to sell the same stock suggests that they value the stock differently. When private information is relegated to the hands of a relatively small number of investors, these investors may be able to profit by trading on their information. Since stock markets aggregate the information and views of many different investors, we expect the stock price to react quickly to new publicly available information as the investors continue to trade until a consensus is reached as to the new value of the stock. If the profit opportunities from having private expertise are large, other individuals will attempt to gain the expertise and devote at least as large amount of resources needed to acquire it.

Which of the following statements is FALSE? When a buyer seeks to buy a stock, the willingness of other parties to sell the same stock suggests that they value the stock differently. When private information is relegated to the hands of a relatively small number of investors, these investors may be able to profit by trading on their information. Since stock markets aggregate the information and views of many different investors, we expect the stock price to react quickly to new publicly available information as the investors continue to trade until a consensus is reached as to the new value of the stock. If the profit opportunities from having private expertise are large, other individuals will attempt to gain the expertise and devote at least as large amount of resources needed to acquire it.

Business/Professional Ethics Directors/Executives/Acct

8th Edition

ISBN:9781337485913

Author:BROOKS

Publisher:BROOKS

Chapter1: Ethics Expectations

Section: Chapter Questions

Problem 10.9EC

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You buy a stock from the capital market. If the capital market is semi-strong efficient, which of the following statements is NOT correct? a. You cannot earn any abnormal returns above the required return by trading on public information. b. Past stock prices can be used to predict future stock prices. c. The technical analysis of publicly available information will not lead to any abnormal returns. d. The stock is fairly priced. e. Stock prices reflect all publicly available information.
Which of the following is FALSE about the semi-strong form of market efficiency? All publicly available information is reflected in stock prices Fundamental analysis can help investors to outperform the market Technical analysis cannot be used to outperform the market Only private information can help investors to outperform the market
Which of the following are consistent with the efficient market hypothesis? Check all that apply. Changes in stock prices can be accurately predicted by investors. At the market price, the number of people who believe the stock is overvalued exactly equals the number of people who think the stock is undervalued. A positive news release about a company will increase the value and stock price for that firm. Some investors cite the existence of anomalies—observations that do not fit the model—as evidence that stock markets are not efficient. Which of the following are such anomalies? Check all that apply. The best time to sell a stock is late on Wednesday or Friday, whereas the best time to buy a stock is late on Tuesday or Thursday. The movement of stock prices of companies over time is the same as the changes in their earnings. High returns to a stock in one period are associated with even higher returns in a later period. There is a…
Which of the following statements concerning the Efficient Market Hypothesis is correct? Select one: a. Stock market prices are based on speculation not on underlying information b. New information that confirms investor expectations should change stock prices c. Stock prices should slowly respond when unexpected information becomes available d. Careful research can help investors earn abnormal profits e. Your return on investment should reflect the riskiness of your portfolio
What is meant by efficient market hypothesis? The third form of EMH, which suggest that all type of private information is also reflected in stock prices. If that is the case, that private information is no more private information as it will be available to all public investors. Justify this statement?
of the following is FALSE regarding the Efficient Market Hypothesis? In general, the Efficient Market Hypothesis says that stock prices very quickly reflect information that is available. O If financial markets are weak form efficient, then technical analysts cannot make abnormally good returns, on average, by studying charts of past stock prices and trading volumes. If financial markets are strong form efficient, then insiders with private information about a company would not be able to make abnormally good returns by trading on that information. The Efficient Market Hypothesis implies that skilled fundamental analysts can make abnormally good returns by studying a firm's financial statements, suppliers, customers, and the economic conditions. Evidence suggests that insiders who trade on private information can make abnormally good returns, but it's illegal to do so.
The weak form of the efficient market hypothesis states: All information is known by all market participants. All financial markets clear. Only the corporate bond market clears. All public information is known by all market participants. Current stock prices are the best guess for future stock prices.
Stock prices in an inefficient market tend to adjust faster to the new public information. Select one: OTrue O False
Your professor finds a stock-trading rule that generates excess risk-adjusted returns. Instead of publishing the results, she keeps the trading rule to herself. This is most closely associated with A. insider trading. B. regret avoidance. C. selection bias. D. framing.
Which of the following statements are NOT problems a typical large investor faces? In order to complete large transactions, they may need to accept higher transaction costs or slower time until completion. If large investors want to trade large amounts of stock without affecting the stock price and while remaining anonymous, they may use a dark pool. If they make a large transaction, they may not receive the best price for those financial securities. Large investors trades are usually executed significantly slower than small investors trades.
Which of the following is NOT correct with respect to the Efficient Market Hypothesis? If markets are semi-strong form efficient, then fundamental analysts would not be able to earn abnormally good returns, after considering the risk they assume. O Semi-strong form efficiency says that if a company announces a labor strike, the stock price very quickly adjusts downward. Evidence suggests that markets are NOT strong form efficient, since insiders could make abnormally good returns trading on private information. However, that is illegal. () Semi-strong form efficiency says that when Stryker makes an earning announcement, the stock price quickly reflects the new information. )Weak form efficiency says that technical analysts who study charts of stock prices and volumes can regularly make abnormally good returns, after considering the risk the assume. Page 24 of 30
Strong form efficient market hypothesis states that stock prices reflects all the information in a market. The information may be public or private (i.e., insider information about the market) and such information will not benefit an investor in the form of higher returns.