Efficient Market Hypothesis

An efficient market is defined as one in which:

• all participants have the same opportunity to make the make the same returns.

• all participants have the same legal rights and transactions costs.

• securities’ prices quickly and fully reflect all available information.

• securities’ prices are completely in line with the intrinsic value.

If a market is inefficient, as new information is received about a security:

• nothing will happen.

• the stock price will fall at first and then later rise.

• there will be a lag in the adjustment of the stock price

• there will be negative demand for the stock.

An efficient market does not require that:

• stock prices incorporate all information.

• all known information be reflected in prices.

• price adjustments occur very quickly.

• each adjustment be perfect.

Which of the following is NOT a test of semi-strong form efficiency?

• Insider transactions

• Stock splits

• Accounting changes

• Dividend announcements

Which is NOT consider as insider trading:

• buying or selling of security by someone who has access to material non public information about security.

• can be illegal and legal

• Insider trading can beat weak and semi strong EMH

• Insider trading can beat strong EMH

What does it mean by "what ever you pay in stock is fair value"

• The price you pay for a stock is fair means that the prices has already incorporated all available information.

• May imply the strong-form market efficiency hypothesis probably does not hold.

• Its just a phrase, not reliable.

• specified trading rules can prove to be extremely useful in generating excess returns

The __________ is NOT a market anomaly.

• size effect

• January effect

• earnings announcement anomaly

• accounting changes effect

The January effect concerns:

• large cap stocks.

• mid-cap stocks.

• small cap stocks.

• foreign stocks.