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WorksheetsMarket Efficiency
Total questions: 10
Worksheet time: 5mins
If prices reflect all public and private information, the market is best described as
weak-form efficient.
strong-form efficient.
semi-strong-form efficient.
Net of fees in efficient markets, passive management is likely to perform:
Worse than active management.
Better than active management.
The same as active management.
If you believe the per-share intrinsic value of Ford Motor Company (F) is $14.00 and it is currently selling at a market price of $12.75, you think the stock is:
Overvalued
Fairly valued
Undervalued
If markets are semi-strong-form efficient, then passive portfolio management strategies are most likely to:
earn abnormal returns.
outperform active trading strategies.
underperform active trading strategies.
The intrinsic value of an asset:
changes through time as new information is released
is the price at which the asset can be bought or sold at a given point in time.
can be easily determined with a financial calculator, given investor risk
preferences.
Which one of the following statements best describes the semi-strong form of market efficiency?
Empirical tests examine the historical patterns in security prices.
Security prices reflect all publicly known and available information.
Semi-strong-form efficient markets are not necessarily weak-form efficient.
Researchers have found that value stocks have consistently outperformed growth stocks. An investor wishing to exploit the value effect should purchase the stock of companies with above-average:
dividend yields.
market-to-book ratios.
price-to-earnings ratios.
With respect to efficient markets, a company whose share price changes gradually after the public release of its annual report most likely indicates that the market where the company trades is:
semi-strong-form efficient.
receiving additional information about the company.
subject to behavioral biases.
Investors who exhibit loss aversion :
have symmetric risk preferences.
are highly risk averse.
dislike losses more than they like equal gains.
In terms of market efficiency, short selling :
leads to excess volatility, which reduces market efficiency.
promotes market efficiency by making assets less likely to become overvalued.
has little effect on market efficiency because short sellers face the risk of
unlimited losses.
