finance econ lec.11&12 market efficiency and behavioral biases

What is economic efficiency?

• highest Sharpe ratio

• the market portfolio

• highest utility given CAL

• maximizing output with inputs

what is investment efficiency?

• highest utility on CAL

• highest Sharpe ratio

• market portfolio

• maxing output with input

Answer explanation

market portfolio is most efficient in CAPM

what is market efficiency?

• demand = supply

• pricing efficiency

• operational efficiency

• minimized risks

what is the difference between pricing accuracy vs. pricing efficiency?

• intrinsic value vs. demand and supply

• intrinsic value vs. value from current info

• demand and supply vs. value from current info

• closest value possible vs. value from current info

types of market efficiency under Efficient Market Hypothesis (EMH)?

• weak form

• average form

• strong form

• all of the above

Answer explanation

correct: semi-strong form

what affects market efficiency?

• prices following random walk

• profitable investments

• behavioral biases

• none of the above

factors against EMH?

• irrational behavior

• many market anomalies

• frequent mispricing

• behavioral finance

• none of the above

factors for EMH?

• there is strong evidence for random walk

• investors don't outperform market index

• no mispricing

• investors are rational

• none of the above

Can markets be fully efficient?

• yes

• no

Answer explanation

if efficient, info selling no longer profitable

parts of behavioral biases?

• cognitive limitations

• culture and social constructs

• info processing

• none of the above