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1、Financial Markets and Institutions 8e (Mishkin)Chapter 6 Are Financial Markets Efficient?6.1 Multiple Choice1) How expectations are formed is impoitant because expectations influenceA) the demand fbf assets.B) bond prices.C) the risk stnictuie of interest rates.D) the term stmcture of interest rates
2、.E) all of the above.Answer: ETopic: Chapter 6.1 The Efficient Market HypothesisQuestion Status: Previous Edition2) Accordmg to the efficient market hypothesis, the cunent price of a financial securityA) is the discounted net present value of futme interest payments.B) is determined by the highest s
3、uccessfiil bidder.C) hilly reflects all available lelevant mfbmiation.D) is a result of none of the above.Answer: CTopic: Chapter 6.1 The Efficient Market HypothesisQuestion Status: Previous Edition3) The efficient maiket hypothesisA) is based on the assumption that prices of securities fiilly refle
4、ct all available mfbimation.B) holds that the expected letuni on a security equals the equilibnum ietuni.C) both A and B.D) neither A noi B.Answer: CTopic: Chapter 6.1 The Efficient Maiket HypothesisQuestion Status: Previous Edition4) If the optimal forecast of the return on a secuiity exceeds the e
5、quilibnum return, thenA) the maiket is mefficient.B) an unexploited profit opportuiuty exists.C) the maiket is in equilibnum.D) only A and B of the above are tme.E) only B and C of the above are tme.Answer: DTopic: Chapter 6.1 The Efficient Maiket HypothesisQuestion Status: Previous Edition5) Accord
6、mg to the efficient market hypothesisA) one caimot expect to earn an abnoimally lugli retuni by puicliasmg a security.B) mfomiation in newspapers and in the published reports of financial analysts is alieady reflected m market prices.C) unexploited profit opportumties abound, thereby explammg why so
7、 many people get rich by tiading securities.D) all of the above are true.E) only A and B of the above are tine.Answer: ETopic: Chapter 6.1 The Efficient Market HypothesisQuestion Status: Previous Edition6) Another way to state the efficient market condition is that m an efficient market, A) unexploi
8、ted profit opportumties will be quickly eliminated.B) unexploited piofit opportumties will never exist.C) aibitrageuis guaiantee that unexploited piofit oppoitunities never exist.D) both A and C of the above occur.Answer: ATopic: Chapter 6.1 The Efficient Market HypothesisQuestion Status: Previous E
9、dition7) Another way to state the efficient market hypothesis is that in an efficient market, A) unexploited profit opportumties will never exist as maiket participants, such as aibitrageuis, ensuie that they are instantaneously dissipated.8) unexploited piofit opportumties will not exist fbr long,
10、as market participants will act quickly to eluninate them.9) eveiy financial maiket pailicipant must be well uifbnned about secunties.10) only A and C of the above.Answer: BTopic: Chapter 6.1 The Efficient Maiket HypothesisQuestion Status: Previous Edition8) A situation in wluch the price of an asse
11、t differs fiom its fiuidamental maiket value is calledA) an unexploited profit oppoitumty.B) a bubble.C) a coirection.D) a mean reveision.Answer: BTopic: Chapter 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Previous Edition9) A situation in wluch the price of an asset differs fiom
12、 its fundamental market value A) indicates that unexploited profit opportunities exist.B) mdicates that unexploited profit opportunities do not exist.C) need not mdicate that unexploited profit opportunities exist.D) indicates that the efficient maiket hypothesis is fundamentally flawed.Answer: CTop
13、ic: Chapter 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Previous Edition10) Studies of mutual fund peiibrmance indicate that mutual funds that outpeifbnned the maiket m one tune periodA) usually beat the maiket m the next tune penod.B) usually beat the maiket in the next two subs
14、equent time periods.C) usually beat the maiket in the next tluee subsequent time periods.D) usually do not beat the maiket in the next time period.Answer: DTopic: Chapter 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Previous Edition11) The efficient market hypothesis suggests that
15、 allocating youi hinds m the financial markets on the advice of a financial analystA) will certainly mean lugher returns than if you had made selections by tluowing darts at the financial page.B) will always mean lower returns than if you had made selections by tlu owmg darts at the financial page.C
16、) is not likely to prove supenor to a strategy of making selections by tluowing daits at the financial page.D) is good for the economy.Answer: CTopic: Chapter 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Previous Edition12) Raj Rajaratnam, a successfill investor in the 2000s who c
17、onsistently beat the maiket, was able to outpeifonn the maiket on a consistent basis, mdicating that A) securities markets are not efficient.B) unexploited piofit opportumties were abundant.C) investors can outpeifbim the market with inside infbnnation.D) only B and C of the above.Answer: CTopic: Ch
18、aptei 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Updated fiom Previous Edition13) To say that stock puces follow a nrandom walk is to aigue thatA) stock prices rise, then fall.B) stock prices rise, then fall m a predictable fashion.C) stock prices tend to follow trends.D) stock
19、prices are, for all practical purposes, unpredictable.Answer: DTopic: Chapter 6.2 Evidence on the Efficient Market HypothesisQuestion Status: Previous Edition14) To say that stock puces follow a Hrandom walk is to aigue thatA) stock prices use, then fall, then rise again.B) stock prices rise, then f
20、all m a predictable fasluon.C) stock prices tend to follow trends.D) stock prices caimot be predicted based on past trends.Answer: DTopic: Chapter 6.2 Evidence on the Efficient Market HypothesisQuestion Status: Previous Edition15) Rules used to predict movements in stock prices based on past pattern
21、s are, according to the efficient maikets theoiy, A) a waste of tune.B) piofitably employed by all financial analysts.C) the most efficient niles to employ.D) consistent with the random walk hypothesis.Answer: ATopic: Chapter 6.2 Evidence on the Efficient Market HypothesisQuestion Status: Previous E
22、dition16) Tests used to rate the peifonnance of niles developed in tecluncal analysis conclude thatA) tecluucal analysis outpeifbrms the overall maiket.B) tecluucal analysis far outpeifbmis the overall market, suggesting that stockbrokeis provide valuable services.C) tecluucal analysis does not outp
23、eifbrm the overall market.D) tecluucal analysis does not outperform the overall maiket, suggesting that stockbrokei s do not provide sendees of any value.Answer: CTopic: Chapter 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Previous Edition17) Which of the fbllowmg types of infbnna
24、tion will most likely enable the exploitation of a profit opponunity?A) Fmancial analysts* published recommendationsB) Tecluucal analysisC) Hot tips fiom a stockbrokerD) Insider infbimationAnswer: DTopic: Chapter 6.2 Evidence on the Efficient Market HypothesisQuestion Status: Previous Edition18) Whi
25、ch of the fbllowmg types of infbnnation will most likely enable the exploitation of a profit opponunity?A) Fmancial analysts* published recommendationsB) Tecluucal analysisC) Hot tips fiom a stockbrokerD) None of the aboveAnswer: DTopic: Chapter 6.2 Evidence on the Efficient Market HypothesisQuestio
26、n Status: Previous Edition19) The advantage of a buy and hold strategyn is thatA) net profits will tend to be highei because there will be fewer brokerage conunissions.B) losses will eventually be elinuiiated.C) the longer a stock is held, the higher its piice will be.D) only B and C of the above ar
27、e true.Answer: ATopic: Chapter 6.2 Evidence on the Efficient Market HypothesisQuestion Status: Previous Edition20) The efficient market hypothesis suggests thatA) investors should not tiy to outguess the maiket by constantly buying and sellmg securities.B) uivestois do better on average if they adop
28、t a buy and lioldM strategy.C) buymg into a mutual fxind is a sensible strategy for a small investor.D) all of the above are sensible strategies.E) only A and B of the above are sensible strategies.Answer: DTopic: Chapter 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Previous Editi
29、on21) Sometmies one obseives that the price of a companyrs stock falls after the amiouncement of favorable earnings. Tlus phenomenon isA) clearly inconsistent with the efficient market liypotliesis.B) consistent with the efficient maiket hypothesis if the earnings were not as high as anticipated.C)
30、consistent with the efficient maiket hypothesis if the earnings were not as low as anticipated.D) the result of none of the above.Answer: BTopic: Chapter 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Previous Edition22) Iinpoitant implications of the efficient market hypothesis inc
31、lude which of the following?A) Future changes in stock prices should, fbr all practical puiposes, be unpiedictable. B) Stock prices will respond to aimouncements only when the infbmiation in these amiouncements is new.C) Sometimes a stock price declines when good news is announced.D) All of the abov
32、e.E) Only A and B of the above.Answer: DTopic: Chapter 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Previous Edition23) Although the verdict is not yet in, the available evidence indicates that, for many puiposes, the efficient maiket hypothesis isA) a good stalling pomt fbr analy
33、zing expectations.B) not a good stanmg point for analyzing expectations.C) too general to be a usefill tool fbi analyzing expectations.D) none of the above.Answer: ATopic: Chapter 6.2 Evidence on the Efficient Market HypothesisQuestion Status: Previous Edition24) The efficient market hypothesis sugg
34、ests thatA) investors should purchase no-load mutual hinds, which have low management fees.B) mvestois can use the advice of tecluucal analysts to outpeifbnn the market.C) investors let too many unexploited profit oppoftimities go by if they adopt a buy and hold strategy.D) only A and B of the above
35、 are sensible strategies.Answer: ATopic: Chapter 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Previous Edition25) The efficient market hypothesis applies toA) both the stock market and the foreign exchange market.B) the stock maiket but not the foreign exchange market.C) the forei
36、gn exchange maiket but not the stock maiket.D) neither the stock market nor the foreign exchange market.Answer: ATopic: Chapter 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Previous Edition26) Accoiding to the Januaiy effect, stock pricesA) expeiience an abnonnal price use from De
37、cember to Januaiy.B) expenence an abnormal price decline fiom December to January.C) follow a landom walk duimg Januaiy.D) set the pattern fbr the entire year m Januaiy.Answer: ATopic: Chapter 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Previous Edition27) The small-firm effect i
38、efeis to the obseivation that small stocksA) follow a random walk but large firms1 stocks do not.B) have earned abnonnally low returns given then greater risk.C) have earned abnonnally high renims even taking into account their greater risk.D) sell fbr lower prices than do large finns1 stocks.Answer
39、: CTopic: Chapter 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Previous Edition28) The efficient markets hypothesis is weakened by evidence thatA) stock prices tend to follow a laiidom walk.B) stock prices are more volatile than fluctuations in their fiindamental values can explai
40、n.C) tecluucal analysis does not outperform the overall maiket.D) an investment advisefs past success oi failure at pickuig stocks does not predict lus of hei fiitiue peifbnnance.Answer: BTopic: Chapter 6.2 Evidence on the Efficient Maiket HypothesisQuestion Status: Previous Edition29) Mean reveisio
41、n refers to the obseivation thatA) stock prices overact to news aimouncements.B) stocks piices aie more volatile than fluctuations in then ftindamental value would predict.C) stocks with low retiims are likely to have lugh returns m the ftiture.D) stocks with low retiims are likely to have even lowe
42、r letunis m the fiiture.Answer: CTopic: Chapter 6.2 Evidence on the Efficient Market Hypothesis Question Status: Previous Edition30) Which of the fbllowmg does not weaken the efficient markets hypothesis?A) Mean reversionB) Success of buy-and-hold strategyC) January effectD) Excessive volatilityAnsw
43、er: BTopic: Chapter 6.2 Evidence on the Efficient Market HypothesisQuestion Status: Previous Edition31) An unpoftant lesson fiom the Black Monday Crash of 1987 and the tech crash of 2000 is thatA) factors other than market fundamentals affect stock piices.B) the strong version of the efficient maike
44、t hypothesis, that stock piices reflect the tine fundamental value of securities, is correct.C) maiket psychology has little if any effect on stock prices.D) there is no such tlung as a national bubble.Answer: ATopic: Chapter 6.3 Why the Efficient Maiket Hypothesis Does Not Imply That Financial Mark
45、ets Aie EfficientQuestion Status: Previous Edition32) An uivestoi gains fiom short selling by and then later.A) buyuig a stock; sellmg it at a lugher piiceB) sellmg a stock; buying it back at a lower priceC) buyuig a stock; selling it at a lower priceD) sellmg a stock; buyuig it back at a higher pri
46、ceAnswer: BTopic: Chapter 6.4 Behavioral FinanceQuestion Status: Previous Edition33) Which of the fbllowmg is an msight fiom behavioral finance?A) The price of securities fiilly reflects all available mfbnnation.B) hivestoi overconfidence leads to higli trading volumes.C) The optimal forecast of a s
47、ecuritys return equals the secuiitVs equilibrium retuni.D) Investment advisers caimot consistently beat the maiket.Answer: BTopic: Chapter 6.4 Behavioral FinanceQuestion Status: Previous Edition34) Which of the fbllowmg is empirical evidence indicatmg that the efficient maiket hypothesis may not alw
48、ays be generally applicable?A) Small-finn effectB) January effectC) Maiket oveneactionD) All of the aboveAnswer: DTopic: Chapter 6.2 Evidence on the Efficient Market HypothesisQuestion Status: Previous Edition35) An arrangement with a broker to bonow stocks from them and then sell it in the maiket, with the hope that they earn a profit by buying