Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 14, Problem 26CQ
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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.
Regarding Efficient Market Hypothesis (EMH), which of the following statements is TRUE?
Investors in the market are assumed to be rational and own private information.
If the semi-strong form of EMH is true, all information contained in the history of past prices has been reflected by the current price.
If the semi-strong form of EMH is true, you cannot beat the market by trading on private information.
Post-earnings announcement drift is consistent with the semi-strong form of EMH.
Which of the following is a reason why an investor would place a stop buy order on a stock? To ensure a short position is closed out for profit To ensure that the broker executes immediately at the current market price To ensure the stock is sold before its price falls to a specified level To ensure the stock is purchased when its price is rising
Chapter 14 Solutions
Corporate Finance
Ch. 14 - Prob. 1CQCh. 14 - Prob. 2CQCh. 14 - Efficient Market Hypothesis Which of the following...Ch. 14 - Market Efficiency Implications Explain why a...Ch. 14 - Efficient Market Hypothesis A stock market analyst...Ch. 14 - Semistrong Efficiency If a market is semistrong...Ch. 14 - Efficient Market Hypothesis What are the...Ch. 14 - Prob. 8CQCh. 14 - Prob. 9CQCh. 14 - Efficient Market Hypothesis For each of the...
Ch. 14 - Technical Analysis What would a technical analyst...Ch. 14 - Prob. 12CQCh. 14 - Prob. 13CQCh. 14 - Efficient Markets A hundred years ago or so,...Ch. 14 - Efficient Market Hypothesis Aerotech, an aerospace...Ch. 14 - Prob. 16CQCh. 14 - Prob. 17CQCh. 14 - Efficient Market Hypothesis Newtech Corp. is going...Ch. 14 - Prob. 19CQCh. 14 - Efficient Market Hypothesis The Durkin Investing...Ch. 14 - Efficient Market Hypothesis Your broker commented...Ch. 14 - Efficient Market Hypothesis A famous economist...Ch. 14 - Efficient Market Hypothesis Suppose the market is...Ch. 14 - Prob. 24CQCh. 14 - Prob. 25CQCh. 14 - Efficient Market Hypothesis Assume that markets...Ch. 14 - Prob. 27CQCh. 14 - Evidence on Market Efficiency Some people argue...Ch. 14 - Prob. 1QAPCh. 14 - Prob. 2QAPCh. 14 - Prob. 3QAPCh. 14 - Prob. 4QAPCh. 14 - Prob. 1MCCh. 14 - Prob. 2MCCh. 14 - Prob. 3MC
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- Telstra announces a major expansion into Internet services. This announcement causes the price of Telstra stock to increase, but also causes an increase in the volatility of the stock price. Which of the following correctly identifies the impact of these changes on the price of Telstra call options? A. The greater uncertainty will cause the price of the call option to increase. The higher price of the stock will cause the price of the call option to decrease. B. Both changes cause the price of the call option to decrease. C. Both changes cause the price of the call option to increase. D.The greater uncertainty will cause the price of the call option to decrease. The higher price of the stock will cause the price of the call option to increase.arrow_forwardAssume that markets are semi-strong form efficient. Suppose, then, that during a trading day, important new information is released for the first time concerning a certain company. This information indicates that one of the firm's oil fields, previously thought to be very promising, just came up dry. How would you expect the price of a share of stock to react to this information?arrow_forwardThe term short selling is the O Selling of a security that was purchased by borrowing money from a broker O Selling of a security that is not owned by the seller. O Selling of all the shares -you own in a company in anticipation that the price will decline dramatically O Betting that a stock will increase by a certain amount within a given period of time.arrow_forward
- What are the implications of the efficient market hypothesis for investors who buy and sell stocks in an attempt to beat “beat the market”?arrow_forwardStrong 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.arrow_forwardThe 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.arrow_forward
- 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. _1. Past data will not give investors an advantage. 2. The stock prices show historical information only. _3. the stock prices reflect all its past market trading data. _4. The stock prices already reflect all publicly available data. 5. The stock prices already reflect all past market trading data. _6. The technical analysis will not give new information in this 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.arrow_forwardQuestion 1 If the stock market is strong form efficient, which of the below statements is true? A) Technical analysis could be used to consistently beat the market B) It would be possible to beat the market through insider trading C It would be impossible to consistently beat the market D) Stock prices reflect all historic and publicly, but not all privately, available informationarrow_forwardIf the stock market is at least semistrong efficient then, O A. trading on information that you read in The Wall Street Journal or on the internet is unlikely to allow you to purchase stocks that are significantly underpriced. O B. you are likely to find underpriced and overpriced securities by conducting a thorough analysis of a firm's financial statements. O C. you should be able to determine when to buy or to sell a stock by studying the pattern of its historical prices. O D. you cannot expect to find underpriced or overpriced stocks even if you have inside information.arrow_forward
- According to the efficient market theory, whenever investors find that the required return of stock is less than the expected return of the stock, the investor will buy the stock. This will: a. drive the price up b. cause the market to crash c. drive the price down d. not affect the pricearrow_forwardShort selling a. What does it mean to short sell a security? b. What is the risk associated with short selling. c. When should an investor short sell? d. How can investors sell stocks they do not own? e. How is a short position closed?arrow_forwardWhich of the following does NOT correctly complete this sentence: In general, the link between an information announcement and the stock price is that Select one: O a. the stock price will not change if the announcement provided only anticipated information. O b. if markets are efficient in the semi-strong form, then the market will react rapidly to the new information. O c. the expected stock return will change if the announcement contains a surprise component. O d. in order for the price of the stock to change, the announcement must be relevant to that particular stock and must be unanticipated. O e. only announcements that have already been discounted will affect the stock price.arrow_forward
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Efficient Market Hypothesis - EMH Explained Simply; Author: Learn to Invest - Investors Grow;https://www.youtube.com/watch?v=UTHvfI9awBk;License: Standard Youtube License